This shows we need cash classes

Most people need education on personal finance. But someone must organise the efforts

Nearly nine out of 10 adults believe there is need for more financial education, but eight out of 10 say they feel confident in dealing with all or most of their financial affairs, a Prudential study shows. And only 7 per cent admit they lack confidence in finance so much they rely totally on outside help and advice.

Liza Vizard, Pru's head of corporate social responsibility said: "This shows why there is a need for a lot more to be done to improve the financial knowledge and expertise of adults as well as children. We welcome The Independent campaign to improve financial education."

Last month, The Independent called for the creation of a personal finance GCSE course and examination in schools and adult education institutes.

Alan Hughes, chief executive of First Direct, HSBC's phone and internet bank, said it was important to get the debate moving. First Direct has an extensive schools programme, which he said was much in the bank's interest. "Our customers tend to be more clued-up than most," he said. "That saves us time and money in dealing with them. So financial literacy is a win-win for everyone, and I am convinced an informed public will buy more financial services."

The Pru's findings were published this week in the wake of a warning from John Tiner, chief executive of the Financial Services Authority, that money and resources are being wasted trying to improve financial education. He added: "Unless we can ensure ordinary people engage realistically with the financial system we are simply storing problems for the future."

While Mr Tiner said that "confident consumers take responsibility for their financial affairs and exercise their power in a properly functioning market", the Pru survey highlights a potentially lethal contrast between people's ignorance and confidence that goes a long way to explain why mis-selling scandals crop up so regularly. Many people simply think they know more than they do about money.

As might be expected, those in the ABC1 social categories are more confident than those in grades C2DE, and those in work are more confident than the jobless. But more people are sure they can give their children sound financial advice than feel able to rely on their own knowledge to find their ways through the maze.

But nearly six out of 10 respondents said their education did not sufficiently prepare them to deal with their personal finances. Worryingly, the figure rises to 63 per cent of those aged 16 to 34, and 67 per cent of those living in rented accommodation. A similar proportion consequently find it hard to understand financial leaflets and a quarter of pension and endowment policy holders do not realise their money is invested in the stock market.

This picture of confusion is underlined by another survey this week, by the Consumer Analysis Group (CAG) for ING Direct, showing most people are baffled by the forest of savings terms, rates and services. And CAG found the very people who are supposed to make this decision easier, bank and building society employees, are just as confused.

They show 37 per cent made "questionable claims" about their company's savings rates and a third were unable to explain AER, which stands for annual equivalent rate and illustrates what a savings interest rate would be if interest was paid and compounded annually.

CAG visited or phoned 69 leading banks and building societies and rated them in terms of their confusion factor. Bradford & Bingley and NatWest came out worst, followed by the other main high street banks. Best were the internet banks, including ING, Yorkshire building society and the Lloyds TSB mortgage lender Cheltenham & Gloucester.

The Pru has an education programme, Plan for Life Learning, run in partnership with Citizens Advice, the Paris-based Organisation for Economic Co-operation and Development (OECD), the National Institute of Adult and Continuing Education (NIACE) and the Personal Finance Education Group (PFEG). NIACE is the main non-government organisation for adult learning in England and Wales, and PFEG is backed by the Government and a wide range of financial service providers.

Plan for Life Learning pays for face-to-face personal finance education to adults on a range of issues, from how to budget to understanding credit and financial planning, and has a financial education research programme with the OECD and Scottish Council Foundation.

In addition, the Pru has published a booklet, How to Plan Your Money, written in far plainer language than the FSA can manage, and runs a free phone-based series of guides under the label, The Plan from the Pru, on 0800 000000. These are among many such initiatives by private companies, financial trade bodies and charities such as ProShare, which have proliferated over recent years, prompting Mr Tiner's warning that money and resources are being wasted because little of this effort is being co-ordinated.

That is why Mr Tiner recently set up a financial capability steering group to agree common goals and rationalise the wide variety of piecemeal approaches into a streamlined policy for improving financial literacy across the board.

He said: "I believe the strategy should recognise consumers' needs change as their circumstances change, the first mortgage, the birth of a child, or investing in a pension. It is an ever-shifting scenario: there is no typical consumer and we cannot hope to address every requirement of every individual.

"What we need to do is to identify a basic set of skills any consumers can use to help them make informed decisions as they go through life. This can reduce the need for regulation. Old attitudes are changing and we are determined that they will be stamped out."

An FSA spokesman said the many initiatives, while welcome, do little more than scratch the surface of the problem. The FSA wants to act as a co-ordinator, introducing benchmarking to measure the spread of financial literacy.

But Mr Tiner recognises the biggest problem will be money. A mass programme of financial education for schools and adults would be expensive. The FSA's funds come from the industry, and Mr Tiner is sounding out opinion on whether it would be best to increase the present levy, which raises about £170m a year, or to impose a new and separate education levy. Both alarm the financial services industry, many parts of which have seen their income drastically cut by the impact of the falling stock market on investors' willingness to trade.

Mr Tiner said: "Cynics may say the industry's misdemean-ours suggest it has prospered on its customers' ignorance and will resist any move to educate them. I do not believe that to be the case, and even if it were, such thinking would be myopic and unacceptable."

Nicola Cadbury, 27, charity worker, from south London

What is a unit trust?

You pay money into it, and someone buys shares for you.

What is APR? Something about interest rates, that says how much you get charged a year.

What is an annuity? I don't know.

Carol Evans, 39, unemployed,

from Liverpool:

What is a unit trust?

I haven't a clue.

What is APR? That's the interest percentage on a loan.

What is an annuity?

Has that got anything to do with the end of the year?

Ashley Agar, 33, software manager, from Reading:

What is a unit trust?

A wrapper to put money into, based on the stock market.

What is APR? Annual percentage rate. What is an annuity? You must take most of a pension in an annuity, which pays out every month after you retire.

Tamsy Abbott, 19, single mother, from Wigan:

What is a unit trust?

OK, you've got me there.

What is APR?

It's the annual rate of interest that you pay on a loan.

What is an annuity?

I haven't got a clue.

Amanda Brown, 39, loans officer for a credit union in Liverpool:

What is a unit trust?

I don't know.

What is APR?

I haven't a clue.

What is an annuity?

No, you got me there.