Financial education gap of rich and poor

Children are to learn about personal finance at school as part of the national curriculum from September, in a bid to close the "huge gaps" in financial skills between youngsters from rich and poor families.

Research released by the Financial Services Authority this week revealed that while one in six children from poor families has a savings account, they are rarely used and hold tiny sums of money. In contrast, eight out of 10 children from affluent areas have savings accounts which they use regularly, and by the age of seven they have an understanding of cheques, credit cards and banks which far outstrips that of infants from poor areas.

Educators believe that this gap stays with children through to adulthood, leaving them with a permanent handicap in dealing with financial institutions, services and products.

To challenge the huge gaps in children's understanding of finance, the FSA is working with the department for education and employment on developing personal finance guidelines for school lessons beginning in September.

This week it unveiled Mega Money: giant three-dimensional coins designed to support teachers' numeracy work in primary classrooms. FSA chairman Howard Davies says: "We see basic numeracy skills as being the key to children managing their personal finances when they are older.

"Personal finance education will be included in the national curriculum from this September, so we must ensure that teachers are confident they will be given the full support and guidance they need."

In the spring, the FSA will make available to teachers a website with a special section devoted to assisting personal finance lessons. The research on children's understanding of money issues, carried out by Loughborough University's Centre for Research in Social Policy, was presented to 200 primary school teachers at the FSA's first conference on financial education earlier this week.

Researchers interviewed children from two primary schools in the Midlands; one in a deprived area, one in an affluent area. They identified significant gaps between the two, with children from low income households having little or no knowledge of financial institutions.

They see their parents operating a cash-based lifestyle and are aware of the careful budgeting employed by parents to pay the bills. On the other hand, children from high-income households have little experience of budgeting and very limited knowledge of household bills.

One seven-year-old from a poorer area said: "There's the gas card from the shop, you buy that and put it in this little slot... if you don't you can't watch television and can't have any food 'cause the cooker is off."

Dr Julia Loumidis of Loughborough University says: "The extent of differences between the experiences of children from low and high income households is very worrying.

"Children growing up in low income households are being denied the opportunity to acquire the financial skills that children in higher-income households take for granted."

The way that personal finance will be taught in schools has yet to be fully decided, but there are fears that children could be bombarded with sales literature from financial services companies.

Virgin Direct runs a website for children called youngmoney.co.uk, which aims to educate and inform in a fun way, using quizzes and online competitions to keep young net users interested.

It makes no attempt to sell Virgin Direct's financial products, but other companies may be less reticent. In particular, the selection of material and the definitions used could be slanted to suit a company's set of products.

For example, Virgin Direct gives a definition of mortgage endowments which highlights the drawbacks: "They are often unclear how much you are having to pay in charges and the plans are often very rigid."

Virgin doesn't sell endowments and can therefore tell children about the drawbacks; companies which sell them are unlikely to inform youngsters in the same way.

The Personal Finance Education Group, made up of a wide range of financial institutions in partnership with the DfEE, has produced guidelines about what will be expected in money lessons.

Children aged 5-7 will learn about what money is, how to recognise coins and notes, risks such as losing it or having it stolen, and how to keep money safe.

By the time they hit 14-16 the guidelines suggest they will have to understand a wide range of products such as bank accounts, mortgages, insurance, pensions and shares.

They will also have to understand complex issues such as the pros and cons of a company being mutual or owned by shareholders.