Ali Maatouk, at the age of 17, is already more financially literate than most adults.
The sixth-former knows that the standard rate of VAT is 20 per cent and that puts him in the minority. In a recent poll by online bank Vanquis, just one in three adults knew the rate, even fewer knew how much you can pay into an Isa (up to £20,000 a year), and nine out of 10 were clueless about the rate of National Insurance contributions (8 per cent).
Skills and knowledge around budgeting, managing credit and debt, insurance, savings and pensions have never been more important, particularly for young people leaving university with an average debt mountain of £45,000.
While financial education is on the secondary school national curriculum, there is wide variation in the hours given over to it in a packed timetable, it is not covered in teacher training and cash-strapped schools have few resources to make it a priority.
Ali’s grasp of VAT is down to being in charge of writing up the invoices and quotations for his dad’s plumbing business.
“It has made me more knowledgeable to some extent,” said The Kingston Academy pupil who is considering a career in stock trading or marketing. “I have to add everything up, including VAT, so I know how much everything costs.”
Beyond these specifics, however, things get a bit hazier for the teenager and two Year 12 classmates. They have a broad-brush idea of personal finance gleaned from school personal development sessions; they can recall one covering student finance and another on taxes and mortgages.
They know that the level of income tax paid depends on the amount earned but are surprised to learn that income above £50,000 is taxed at 40 per cent. Sharnaya Ganti, 17, who is hoping to study medicine, thought the threshold would be more like £90,000.
Her estimate that student loan repayments are triggered at a salary of “between £20K and £30K” is in the ballpark of the actual amount of £24,990 a year. Tackling a question on interest rates, the Year 12s remember the topic from GCSE maths and use the term “compound interest” to explain why 2 per cent a year on £100 amounts to more than £110 in five years.
These are bright teenagers studying at an outstanding academy and are likely to be more knowledgeable than their peers generally.
In a recent personal finance quiz set by The Centre for Economics and Business Research for Wealthify, under 18-year-olds got an average of just two out of 10 questions right.
Background factors can make matters worse. A study by University College London revealed that the financial skills of disadvantaged 15-year-olds were four years behind those from the most affluent homes.
“Most people say they could do with financial education now and wish their kids had it”
These kind of findings are fuelling calls for financial education to be extended into the primary curriculum and for more content to be compulsory.
A report published today by the Common's education committee is calling for financial education to be expanded to primary level and for better guidance and teaching materials to be made available. It also wants to see schools appoint financial education coordinators and for financial literacy to be a key component in the Government's plan to teach maths in sixth form. In tandem, teachers are demanding that the exam burden on young people is reduced so there is time to teach these life skills.
Leon Ward, the CEO of MyBnk, which delivers financial education programmes to schools and other organisations, told MPs on the committee that the current situation was “dismal”.
“Everybody agrees financial education is a good idea. Everybody wishes they had it. Most people say they could do with it now and wish their kids had it,” he says. “But our research with Compare the Market shows that only two in five young people consider themselves to be financially literate and can recall any financial education.
“It is a postcode lottery. We work in the most deprived areas. Young girls feeling less confident about money than boys is inherently linked with their socioeconomic background, too.”
In the current economic climate of high inflation, rising costs, “buy now pay later” and other forms of credit, sessions on managing money can make a real difference.
Ward describes a training event with new recruits at a contact centre two days before they got their first payslip.
“Instantly, you can see them re-enrolling in their pensions,” he says. “You can see them starting to think about budgeting. It brings to life the learning.”
“With social media you see things online constantly and you want to buy them”
Mariam Malik, 16, agrees that young people could benefit from more financial education. The Kingston Academy pupil feels grateful that a supportive family means she feels protected from the money worries that other teenagers might face.
She is not immune from the pressure to consume, though. The cost-of-living crisis means money is tight but we face a daily bombardment of adverts and influencers trying to sell products and lifestyles, while scammers are using ever more sophisticated techniques to try to defraud us.
“With social media you see things online constantly and you want to buy them,” says Mariam. “But in reality, you can’t always get what you want.”
Classmate Sharanya Ganti has a similarly mature view: “You don’t want to be a burden on your parents, that’s the main thing,” she says. “You don’t want to be constantly asking for money for things you want. You should save that money for when you need it for university. I always think twice about buying things and ask myself, ‘Do I really need this?”
Ali, Sharanya and Mariam are all aware that they live in one of the most expensive cities in the world. The flip side of that, they hope, could be better job opportunities.
“I’m thinking about law and the prospect of what I can make in the future really motivates me,” says Mariam. “People can think negatively about money being an aim but I feel like there is no shame in it. Money is money at the end of the day. I want to be at that stage where I can provide for my family and I want to do the most I can now so I can have that secure future.”
Money saving expert
MyBnk CEO, Leon Ward, shares his advice on financial management
1. Budget and track your spending: this is a golden rule that can help you understand where your money goes. It is the first step to taking control of your finances. There are many budgeting apps and online tools that can help you categorize your spending and identify areas where you can cut back. Once you know where your money is going, you can start to set realistic savings goals.
2. Set savings goals: having a savings goal will help you stay motivated to save money. Whether it's for a new phone, a dream vacation or a downpayment on a car, set a specific goal and track your progress. You can start by using one bank account for your savings and another one for your spendings.
3. Make saving automatic: set up automatic transfers or direct debit from your main account to your savings account. This will help you save money consistently without having to think about it. Even a small amount of money saved each week can add up over time. There are several apps available that can help you do this, too.
4. Be aware of your needs vs wants: it's easy to get caught up in the moment and make impulse purchases that you later regret. Before you buy something, ask yourself if you really need it or if you can live without it. If you're not sure, wait a day or two before deciding. Always keep money aside for necessities like rent, bills and food.
5. Keep your money safe: MyBnk’s tips on banking safely can be found here.
