Last week was celebration time for 27-year-old Gemma. After six years of full-time work as a PR consultant, she managed to pay off the Pounds 10,000 bank loan she’d bought as a student. The loan, charging double-digit interest, was sold to Gemma by the high street bank that she’d saved with since she was a child.

“I know it sounds stupid, but at the time I didn’t even look at how much interest I was paying, or how long it would take me to be debt free,” she says. “Since the bank was offering it to me I thought I must be able to pay it back and just looked at it as free money - a sort of top-up for my student loan.”

This might sound naive. But Gemma isn’t stupid. She’s a smart, hard- working young woman who allowed herself to be manipulated by an industry that is all too happy to exploit consumer ignorance of its products. She’s not alone. A study in 2007 by one personal finance organisation found that half of young people were in debt by the age of 17 - a statistic that’s even more alarming in view of the global credit crisis.

Being financially savvy has never been more important. The UK is marching steadily into a recession of the like not seen in a generation, and British households have amassed record levels of debt. According to credit-rating agency Standard amp; Poor’s, a drop in house prices sent 600,000 homeowners into negative equity last year. Our financial literacy is a national embarrassment according to a report from the Organisation for Economic Co-operation and Development, which concluded that Britons systematically overestimated their knowledge of money matters. A study by the Financial Services Authority the same year showed that 7 per cent of people even had trouble reading a bank statement. “About half of people don’t take account of the interest rate when they’re borrowing or saving,” says Vyvian Bronk, head of financial capability at the FSA. “People’s ability in this area is not even close to what we assume.”

Last year Ed Balls, the Secretary of State for Children, Schools and Families, introduced a Pounds 11.5 million scheme to boost financial education in schools, giving pupils the tools to make smart choices about their future.

The My Money project, which runs until 2011, will develop resources to improve financial literacy, launch a dedicated My Money week this July, and field a network of regional consultants to help schools and local authorities find time for financial training in a crowded curriculum.

A department spokesman called it, “the first project to provide joined-up financial education starting from when a child first starts school, through to the age of 19”. The Government has also taken the step of making economic wellbeing and financial capability part of the programme of study for Personal Social and Health Education, and in Scotland the Scottish Centre for Financial Education provides help and advice to teachers.

But how do you make the dry world of annual percentage rates and balance transfers accessible to pupils? Wendy van den Hende, chief executive of the Personal Finance Education Group (PFEG), which leads the My Money project, says, “It’s a useful way to teach other stuff children are interested in, such as ethical investment, the environment and fair trade. Most will have mobile phones and part-time jobs. It’s about helping them to develop financial acumen, enabling them to challenge and question, not just telling them don’t get into debt.”

Big, fun practical activities can help the subject come alive, like the stock market day held by PFEG at Lawrence Sheriff School in Rugby. Year 9s were given Pounds 100,000 to invest on an impromptu trading floor staged in the school’s main hall, and relayed news flashes and investment updates on to a screen using software called Stock Market Challenge. Between them, pupils had to act as investment managers, media analysts and traders, and the winning group was the one with the best-performing portfolio.

It’s not exactly an exercise in financial prudence, but Laura Kisby, head of careers and enterprise, believes it taught pupils about risk. “It showed them that on the stock market, even if you make a wise decision, things can get out of control. Pupils also learnt how to read and make sense of financial articles, and 71 per cent said it had improved their negotiating skills,” she says.

With such a complex subject, it’s no wonder most schools wait until secondary level before broaching it, but it is possible to start as early as reception. At St George the Martyr C of E Primary School in Camden, London, staff teach the value of money to children as young as four by getting them to set up imaginary shoe shops and price their own goods.

The school council is also in charge of parts of the school budget - poring over electricity and stationery bills in order to cut costs. In maths class, older pupils calculate how much energy they can save by switching the lights off, while Year 1 children count the sheets of paper they’ve used, and how much it has cost the school.

Amanda Szewczyk-Radley, headteacher, says: “They’re interested in the environment anyway, so it ticks a lot of boxes, and at this rate it looks like they’ll save thousands.

“I’ve told them they can spend this money any way they want to improve school environment. They’ve been talking about getting a pond, and it’s been a great motivator.”

The fact is, children might be more interested in money than we think - 90 per cent of teenagers think about it on a daily basis according to PFEG. To spark their interest, it’s a case of approaching the subject in a way that chimes with their daily lives.

Su Kler, an Advanced Skills Teacher at Salesian College, an independent Catholic boys’ school in Farnborough, uses her maths lessons to help pupils pick a mobile phone contract. “Because it’s not ordinary maths, it’s really easy to get their interest,” she says. “You’d be surprised how much some of them know.”

Su admits that pupils’ financial skills aren’t always as polished as they ought to be, however. “I did a quiz and one of them thought a mortgage was someone who worked on the motorway,” she says. “Now there is more pressure to have the right trainers, the right gadgets, I think people are less sensible about money than they used to be.”

This is why children need to be taught, not just the names and purposes of financial products, but basic money sense, according to Martin Lewis, of www.moneysavingexpert.com. The consumer champion says children need to be taught a healthy scepticism of banks and big business in order to make the right decisions. “Their job is to make money from you - not that there’s anything wrong with that, but it’s the reality. The last place you should go to for financial advice is your bank, because it will try to sell you products.”

Children need to be taught about debt - how banks will try to sell you loans over a long period to maximise their interest - and educated in the difference between good borrowing (a cheap, government-approved student loan) and bad borrowing (expensive credit cards). It will mean people, like Gemma, don’t just fall into debt. And the impact on the broader economy could be huge: “If we’d had decent financial lessons in schools 10 to 12 years ago we wouldn’t be in the mountain of debt we are now,” he says.

Unsurprisingly, Martin isn’t a fan of banks getting involved in financial education - “disgusting sham branding, we shouldn’t let them bring their own agenda into schools”, he says. However, many schools use resources provided by high street names, and the PFEG receives much of its funding from the industry. A lot of the help and advice schools have access to is bankrolled by brands such as HSBC and Barclays. So does this mean teachers should try and steer clear of their products?

The answer is probably to pick and choose, and realise that resources provided by banks, while useful up to a point, are unlikely to be written from a sceptical consumer-led perspective. HSBC, whose What Money Means scheme run in conjunction with PFEG has worked with primaries in eight regions across the country, says that it is aware of concerns, but would never advertise to children.

Peter Bull, head of HSBC in the Community, says, “We don’t put the logo on anything that goes in front of pupils and we stress to staff that go into schools that they shouldn’t be talking about HSBC. It would be ridiculous for us to do that. We want more financially educated people. It’s good for the public, and it’s in the interests of the institution.”

Teaching about finance can be daunting, but knowing where to go for help is the first step. The PFEG website (www.pfeg.org.uk) or the Scottish Centre for Financial Education run by Learning and Teaching Scotland (www.ltsscotland.org.ukfinancialeducation) are good places to start, and the personal finance section of www.teachernet.gov.uk also has some useful links.

In England, the Government recommends teaching the basics of counting, shopping and spending at key stages 1 and 2, the workings of banks and big business at KS3, and a bit of extra nitty gritty about debt and wages at KS4 - blending it with other subjects such as maths, English and technology. Who knows, you might even pick up a few tips.

Mike Simpson, head of RE, citizenship and PSHE at the Venerable Bede C of E School in Sunderland teaches Year 8s about money management using a holiday budgeting CDRom called Lifeskills - Traveller’s Cheque. He admits: “I’m not very good with money and this has helped me a great deal. I didn’t have any financial education at school - none - so I’ve found it as interesting as the pupils.”

But does finance education actually work? There’s no point in throwing millions at the problem, not to mention the nights spent cobbling together resources, if pupils just leave school and make the same mistakes as their parents.

Mick Mcateer, director of the Financial Inclusion Centre, a not-for-profit think-tank, and a former policy adviser at Which?, says: “Everyone supports it, it’s like motherhood and apple pie, but there’s not a lot of research about it. It’s problematic because with schemes that start today it could be a generation before they pay dividends.”

Professor Nigel Waites, director of the Financial Services Research Forum at Nottingham University, agrees. “It’s not liable to be remedied by a quick fix. Part of the problem is the industry is so complex. And also, let’s be honest, most people find it inherently dull.” Dean Karlan, a professor of economics at Yale University, delivers a more brutal verdict: “The best evidence on impact of compulsory financial education in schools in America shows a big fat no effect,” he says.

There is also scepticism from some quarters about whether PFEG’s approach of spreading financial education across the curriculum is the right one. Rod McKee, head of financial capability at the ifs School of Finance, an education charity that trains pupils in 300 schools, says that incorporating the subject into other curriculum areas such as maths is unwise. “Maths teachers are teaching concepts, but while it might be helpful to know the formula for compound interest, pupils need to understand the consequences,” he says, pointing to a Ofsted report last year that said spreading the subject across the curriculum led to fragmented experiences for pupils. The school wants finance education to be offered as a stand-alone subject, like modern languages, that all schools must provide. But, in a pressurised timetable, a cross-curricular approach is better than nothing.

Families can set a good example to children by giving them a weekly allowance, involving them in the family budget, and not bailing them out when they’ve overspent. As Niall Ferguson, the historian, writes, in his new book The Ascent of Money, “it’s a well-established fact that a substantial proportion of the general public in the English-speaking world is ignorant of finance.” With the public’s financial literacy in such a state, school may be the only place pupils can learn from their parents’ mistakes

Teaching real-world maths, page 23

DO I HAVE TO TEACH PERSONAL FINANCE?

Economic wellbeing and financial capability has been introduced as part of the programme of study for PSHE at secondary level in England - although PSHE itself is not compulsory. Teachers are advised to discuss risk, financial planning and an understanding of the economic environment. At primary level, making sensible decisions, looking after money and understanding its uses all form part of the guidelines, and economic wellbeing is a tenet of Every Child Matters.

In Wales, schools are asked to help pupils become competent at managing personal finances and recognise that savings provide financial independence as part of personal and social education lessons, but although PSE is compulsory as a subject, the guidelines are not.

In Scotland, staff are advised to teach financial understanding, competence, responsibility and enterprise. The Scottish curriculum is not statutory, and is currently under review.

About half of primary schools in the UK and more than 90 per cent of secondary schools deliver some form of personal finance education, according to a survey by the Financial Services Authority in 2006. More than two-thirds do not have a written policy about it and just give occasional lessons.

WHERE CAN I GET RESOURCES?

A lot of organisations offer to help teachers with finance education, but which ones to choose?

- As a first step, the personal finance section of www.teachernet.gov.uk can help you with useful resources, and PFEG and the Scottish Centre for Financial Education also provide web material, and may be able to put you in touch with a consultant who can visit your school. PFEG’s Why Learning Money Matters DVD is a good introduction to the whole topic.

- Christian Aid’s Trading Trainers links finance to fair trade, and HM Treasury’s free The Red Box resource introduces children to public spending.

- The consumer website www.moneysavingexpert.com provides a free downloadable Teen Cash Guide.

- The ifs School of Finance provides QCA-accredited A-level and GCSE- equivalent qualifications in personal finance.

- Many banks sponsor resources, such as Barclays’ Money Skills, and HSBC’s What Money Means, both provided through PFEG, but always bear in mind who’s funding these materials and why.

STATISTICS

173% - Average household debt in Britain as a proportion of income.

7% - Percentage of people who can’t read a bank statement, according to FSA research.

Links to the other articles in the Maths Subject Focus

Primary Maths - How guided maths can be a golden opportunity for pupils to find their voice

Fuel their excitement - Take a class of primary pupils, add practical activities and Formula 1.

Working round the clock - Ensure pupils remember a subject by getting them to set up dates and share information

Money talks - Helping pupils understand money