How should personal finance be taught and what lessons should pupils learn?

Every 5 minutes 12 seconds someone in the UK is declared bankrupt or insolvent. It is clear that something needs to be done to prevent the next generation of adults becoming financially illiterate and contributing to this statistic. It seems ridiculous to think that one can come out of the UK education system knowing how to use literary techniques such as ellipsis, and be able to differentiate a polynomial equation, yet not know how to budget. Unfortunately, this is the reality that we face. While most people would agree that education on personal finance is important, many are unsure on what we should teach and how should we teach it.

Would a “back to basics” approach be effective in teaching children about personal finance? Children are not taught how to solve simultaneous equations as soon as they start to learn maths so it would be illogical to assume our children will know the basics about personal finance as soon as they take their first precious breath. A fine example of this is… myself! As much as I hate to admit it, up until the age of 14 I didn’t even know what a mortgage was. It sickens me to think that I was so financially illiterate a few years ago. However, I am not in the minority, as so many more children and teenagers are just as financially illiterate. But why is this? I believe the reason is because parents assume that the children they lovingly care for already know about personal finance, and would argue, “If they are able to solve quadratic equations at school then I’m sure they’ve learnt how to budget and open a bank account”. This is simply not true, as schools do not have the time to teach extra curricular skills such as personal finance due to league table pressures, and because of this more children who are going to leave school financially illiterate. It is for this reason that the first few lessons of personal finance that I would teach would be on the very basics; explaining what and how to open a bank account, what a savings account is, and explaining concepts such as interest and APR because if I don’t teach children this during a lesson, then who else is going to teach them?

Secondly, lets look at the problems the adults of today face. Many people are in financial trouble because they cannot afford to pay off their debts for a variety of reasons such as unemployment, or rising interest rates. Outstanding personal debt in the UK is now as £1.424 trillion as of February 20132 and 43.1% of people in Hull have problems with paying back debt. These are shocking statistics but what one must ask from seeing these figures is why these increases in personal debt have occurred? Over the past 20-30 years there have been an explosion in terms of how we communicate, with mobile phones and the Internet; because of this shopping and selling has become so much easier… and so has attaining loans. Without proper guidance many adults will have been mislead into getting short term loans with sky high interest rates, some as high as 5000%! The amount of adults in debt at the moment would greatly be reduced if these adults had lessons about the positive and negative aspects of using short-term loan companies such as “www.wonga.com” and “www.quickquid.co.uk”. If the adults of this country are not educated about these types of loans, then how can we expect our children to know about them without any sort of guidance? This is why lessons on the pros and cons of loans need to be taught at school because there is very little understanding of these loans at the moment.

Furthermore, a large portion of adults in debt finds themselves in these situations primarily because of poor budgeting. A Gallup poll found that 66% of Americans do not budget at all. It is for this reason that a lesson on budgeting is essential for students, because it helps to prevent children getting into debt unnecessarily in their later lives.

How personal finance is taught is a vital issue because if personal finance is taught in a boring way, pupils will not be interested, and ultimately, they will not learn much during the lessons. I believe that the best method of teaching personal finance is to create a “Micro-society”. It is essentially a real life market, but with fake money. All students will start off with ample money, rather like the start of a game of monopoly, but are then left to their own devices free to set up whatever business, or service they want; some will set up hair salons using their hair gel from home, some will rent video games for an hour, some may set up their own banks complete with interest rates, and some of the more innovative students may even decide to buy the whole classroom; forcing all of the other students to pay rent! This active method of teaching personal finance is far better than the traditional “blackboard and chalk” style teaching that is employed in other subjects because this gives students first hand experiences that will force them to budget, to think about loans, and crucially gives them a safe taste of what real life is; a rare opportunity for many students.

Overall, when teaching personal finance to pupils, it is important not to assume any of their knowledge and start from the very basics; after all you cannot build a pyramid without its base! Budgeting and debt must be the two main topics taught to pupils because they are financial concepts that will follow these pupils from when they leave school until they pass away. But most importantly, these topics must be taught to students in an active manner to interest them and to allow them to practice these key skills to prepare them for the future.

Contributed by Aravin Skantha

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