William Kay: The people who know least about money are those who need it most

The prospect of a generational chasm in financial expertise drew significantly closer this week.

The prospect of a generational chasm in financial expertise drew significantly closer this week. Two surveys confirmed, if confirmation were needed, the woeful state of knowledge about finance among most of today's adults, but two developments on the educational front raised the hope that today's schoolchildren will enter the workforce better equipped to deal with the money challenges that will confront them.

The Institute of Financial Services (IFS) survey has thrown up some horrendous gaps in knowledge and understanding, echoing the credit union loans officer I came across in Liverpool last year who did not know what an APR was. For those who have not been paying attention, it stands for annual percentage rate, and expresses the rate of interest and other costs paid on a loan or mortgage.

There are many ways of calculating it, but we will save that little twist for another day. Standing orders, insurance, inflation, whatever the term the researchers threw at the public, vast numbers did not know it or claimed not to have heard of it.

This points to the urgent need for financial education at adult level, which The Independent has been arguing for more than a year. The Treasury, Financial Services Authority, Personal Finance Education Group and umpteen financial companies, virtually everyone bar the Department for Education, have been banging the drum increasingly loudly.

But at the adult level it is very difficult because the audience, to say the least of it, is far from captive. And the picture of chaos and disorder painted by the likes of last week's Turner Report on pensions is hardly encouraging anyone to rush to a textbook. And now the IFS is, at least, doing its bit for the next generation. It has followed its AS level exam in personal finance, which has been taken up by 92 schools, with a wide-ranging A level which sets personal finance in the context of the wider community and addresses problems such as buying a house with a partner.

I have high hopes for the new educational blueprint laid out this week by Mike Tomlinson, the former chief inspector of schools. The flexibility being built into the four-stage graded diploma should give more opportunity for including a personal finance module, assuming the government adopts the proposals. Freed from the present rigid national curriculum, individual schools and pupils should be able to add in such specialities, although I fear it is some years from being implemented.

The gulf between the young and old on the financial front was emphasised by another survey from the Co-operative Bank this week, revealing that nearly half of all families on low incomes prefer personal one-to-one contact with a financial adviser. That is a highly logical preference, as they tend to be the most ignorant. Trouble is, they do not tend to trigger enough commission for most advisers to spend much (or any) time on them.

Even the 1.5 per cent commission the Treasury is allowing for selling so-called stakeholder products, is failing to excite sellers. But the Co-op says more than six times as many people would rather deal with an adviser than trawl through mailshots. The very people in need of what would in effect be a tutorial on some aspect of personal finance are precisely the people most likely to be left in the cold.

* I HAVE been silent on the gold price for seven weeks, so an update is overdue. This week the price went above $424 (£236) an ounce, a useful improvement on the $390 or so at which I tipped bullion on 31 July. The weak dollar and dear oil have combined to send many people scurrying into gold as a safe haven for their money.

After marking time around $415 for a few weeks, the sudden upward movement should have further to go, at least until after the US Presidential election removes uncertainty about the direction of the US economy.

Uncertainty is the best polish for gold, and I expect more than enough of that commodity to keep gold shining for a few months yet. There may even be time to buy now and make some profit.

Are Pru's plans for expansion prudent?

Jonathan Bloomer, Prudential's chief executive, raised many an eyebrow this week when he said he wanted to raise £1bn from a shareholder rights issue to expand the business in the UK. Either he knows something the rest of us don't, or he is taking the biggest punt since George Soros made £1bn out of short-selling the pound 12 years ago.

It seems hard to see where fresh demand for financial services is going to come from, with the stock market slumbering, savings at their lowest for years and the financial industry engulfed by one scandal after another.

But Mr Bloomer appears to be pinning his hopes on next year's depolarisation, under which banks and other financial retailers are to be allowed once more to sell a range of products. Mr Bloomer's hope is that the Pru will gain many more outlets than it has at present, helping to replace its legendary door-to-door sales force which it scrapped a few years ago. Some of that £1bn may go to pay higher commissions to get retailers to stock Pru policies, as others are doing.

I expect the fly in this ointment to be bank branch staffs. They cannot always be trusted to handle their own in-house ranges, let alone the offerings of half-a-dozen outside providers.

But the Pru may encounter fierce competition from other insurers in the new environment. Pru shareholders should shun the rights issue.

w.kay@independent.co.uk