Four years after the introduction of financial education in English secondary schools, 16-year-old leavers today have better money management skills than most adults.
That’s according to results from an experiment designed to test the effects of compulsory money lessons on the country’s youngest earners and highlight the potential issues for those left behind.
As part of the investigation, 1,000 people of all ages took a mock GCSE financial literacy exam based on guidance from the All-Party Parliamentary Group on Financial Education for Young People.
More than two in five of the 16-year-olds who sat the exam achieved an A grade, suggesting that financial education in schools is indeed having a positive effect.
Nicholas Amoui, 16, from Portsmouth, said he did a financial education course at school and really enjoyed it.
“I’ve always liked maths, so when it was applied to real-life situations it made a lot of sense,” he said.
“I recently went to the US, and the financial skills I had learned came in useful when I needed to exchange currency. There are a lot of deals around and sometimes it can be difficult to tell which one really is the best.
“Having that financial knowledge gave me a lot of confidence.”
It’s a boost that could benefit more than just those teenagers too. Several international studies examining strategies for relieving poverty over recent years have demonstrated that providing financial education to a school-aged child regularly improves the whole household’s money skills.
Meanwhile, fresh from the school of life, baby boomers also performed well. In fact, they aced the test, according to data from free credit report provider Noddle, which conducted the experiment.
Almost 60 per cent of 50- to 65-year-olds achieved an A or above, the consumer group that finds financial decision-making the least daunting of any age group.
The mock paper used in the research looked to gauge people’s understanding of key financial principles, as well as test their grasp of basic maths in the context of typical money scenarios.
Questions included calculating the best interest rates, analysing the impact of inflation, understanding the difference between good and bad debt and picking the right multi-buy deal in a supermarket.
In other words, this wasn’t a paper testing whether we can calculate compound interest or correctly interpret a fund fact sheet. It was a paper assessing the very basics of financial knowledge and applications that we come up against every day – knowledge that could mean a fortune lost or gained over a lifetime.
And yet millennials got just half the questions right on average. If it had been a real exam, a third would have failed. A quarter would have got the very lowest grade possible – an E – or below compared with less than a fifth of 16-year-olds.
Almost two thirds of the 19- to 39-year-olds assessed couldn’t correctly answer a question on what a credit score was. This is despite 46 per cent saying that their education taught them about credit scores.
“At secondary school, I didn’t get any financial education,” said Thomas James, a 30-year-old from London. “I think the mentality back then was this was something you learn about once you leave school. I’m glad to hear that the government has changed this, and financial education is now on the curriculum.
“My lack of financial understanding has caused me problems. I’m not great at budgeting and putting money away for a rainy day. These days I do a lot of reading online to try to better myself in personal finance. I’m looking to buy a house in the next year, so I want to be in a position where I know I’m making the best financial decision.”
In fact, more than half of millennials say they find it hard to make financial decisions.
Already facing costs and debt levels that far exceed their predecessors, it’s clear millennials are trying to pursue their financial aspirations with one hand tied behind their backs.
Separate research out this week shows three quarters of millennials are actively putting money into savings, for example, and that, as a generation, they save the highest proportion of their income of any adults.
But while many millennials save hard, the cost of assets – especially property – means that no matter how hard they save many won’t be able to establish the lives they want without assistance. Some have given up on saving – one in 20 18- to 34-year-olds feel that major life goals, such as home ownership, seem so unachievable that it has discouraged them from saving. More than one in 10 also feel uninformed about the amount of money they should be putting away.
“Once young people leave school or university and enter the working world, it’s important that they feel inspired and empowered by earning their own money for the first time," says Liz Alley, divisional director, financial planning, for Brewin Dolphin.
"For many, it’s a time of life when they start thinking about their longer-term goals and this can feel quite overwhelming. Money will be an important part of achieving these goals, and so thinking of the two together is important.
"To make this a less daunting prospect, young adults can think about breaking this down into different areas, creating separate savings pots for different goals to make it more manageable.”
Are you smarter than a 16-year-old? Find out if you would pass GCSE financial literacy.
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