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Teaching personal finance to school age children

Given the complexities of modern life, is it right to let children figure out personal finance for themselves and potentially make costly mistakes in the process? Not so says payday loan provider 247Moneybox.com. The firm has been discussing internally about how to promote financial education teaching in schools and the optimum age to convey those messages. A common theme from those discussions is that without a form of assessment, the advice might not quite hit home. So when the company discovered that there was an A-Level equivalent qualification available to sixth-formers, they quickly put together a sample quiz for the staff. The qualification is available from Institute of Financial Services University College, an education charity.


Student answering exam questions

Here is a sample of some of the questions with answers below:

1. You find a credit card available online suggesting it's "interest free" or available for a 0% welcoming offer. How much will shifting your debt from a credit card you currently hold cost?

  • a. The "balance transfer" fee as advertised as well as the 0% offer
  • b. You will not be charged anything

2. A new institution has recently taken over responsibilities from the "Financial Services Authority". Please select the correct one from below.

  • a. The Bank of England's Financial Policy Committee
  • b. The Prudential Regulation Authority
  • c. The Financial Conduct Authority
  • d. All of the above

3. Case Study: Mr. Jones currently owes £500 to his credit card company from last month and has a direct debit set up to clear the balance. The minimum monthly repayments as agreed are £5, but he only has £490 in his bank account linked to this provider. What charges will he incur if we presume the credit card has a monthly interest rate of 5%?

  • a. £0, he has enough to cover the minimum repayment so there will be no penalty
  • b. Interest charge of £25
  • c. Interest charge of 50p

4. Sharia-compliant banking differs from traditional banking. Please choose one aspect from the answers below that is NOT offered within Islamic banking.

  • a. The only product that is permitted for use as investment in the stock market are pensions.
  • b. For mortgages, the customer repays the bank monthly as the bank typically buys the property outright. This allows the bank to avoid interest, which is prohibited.
  • c. The stock market is not invested in directly using a client's finances or investment portfolio.
  • d. Clients receive a "bonus" payment rather than interest on any savings accounts they hold with the bank.

5. A Mortgage Market Review was conducted in 2013. Please select one of the options below that was NOT concluded as a result of it.

  • a. The bank or lender is responsible for establishing whether or not a client is able to repay their mortgage.
  • b. The bank or lender must review all of the client's income and expenditure in order to establish their ability to repay their mortgage.
  • c. A mortgage broker takes on the liability of a client's potential to repay the debt if used instead of a direct agreement with the lender.
  • d. The client has to demonstrate they are able to repay the capital sum at the end of the mortgage period when an interest-only mortgage is agreed.

6. What has been the cost of mis-sold PPI on the UK banking industry?

  • a. £18.4m
  • b. £4bn
  • c. £18.4bn

7. Name the type of account below that is classed as a "loss leader" account.

  • a. Mortgage agreement where a better deal can be found for the borrower with another lender.
  • b. Student bank accounts that offer incentives in order to retain their clientele upon graduation.
  • c. Packaged accounts that are paid for with monthly instalments by the client for little or no financial incentive.

8. What constitutes a "sustainable financial product"?

  • a. An account or financial product that pays towards environmental and energy-efficient causes.
  • b. A financial product that is profitable thereby allowing a continual production and sale of the product using said profit.
  • c. A financial product that meets client needs thereby allowing the bank to produce enough profit to sell other financially profitable products.

9. Case Study: Mr Davies wishes to buy a holiday home in Portugal securing a mortgage in Euros from a Portuguese bank. The bank offers a mortgage of €100,000 and a monthly repayment rate of €1,000. The exchange rate at the time £1 = €1, however, shortly after the value of the pound rises so that 70p = €1. How much is the new value in pound sterling of Mr Davies's monthly repayment and overall mortgage debt owed?

  • a. There is no change.
  • b. £170,000 total owed + £1,700 paid monthly
  • c. £70,000 total owed + £700 paid monthly
  • d. £70,000 total owed + £8,400 paid monthly

ANSWERS

1. A

2. D

3. B

4. A

5. C

6. C

7. B

8. C

9. C