Personal Finance

Why financial education adds up

It's one of the most daunting parts of growing up – applying for a mortgage to buy your first house and balancing your finances so that you're not crippled with massive credit card bills. So you would think that a few lessons in financial management at school would be a key part of the curriculum. However, in many countries this is not the case.

"When people are unable to make wise financial decisions, that can have an impact across society", Gerri Walsh, president of the FINRA Foundation – whose mission is to provide underserved Americans with the tools necessary for financial success – told CNBC.

According to the 2012 PISA Financial literacy skills survey in which 18 countries participated, only one in 10 students across 13 countries in the Organization of Economic Cooperation and Development was able to tackle the hardest literacy tasks. These include identifying transaction costs and calculating the balance in a bank statement while accounting for transfer fees.

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And a FINRA survey released in March 2013 found that only 24 percent of Millennials are able to answer four out of five questions in a financial literacy quiz correctly.

"One of the things that we took away from the survey is that there are a lot of people that are rather stressed about their finances", Walsh explained adding that 89 percent of the respondents believed that financial education should be taught in school.

Younger people nowadays, she continued are "responsible with dealing with debt in a way that previous generations didn't have to do".

From September onwards, secondary school pupils in England will - like the rest of their U.K. comrades – finally receive financial education after the government included the subject to its national curriculum. The new course aims to arm students with the ability to manage their money, budget, and plan for future financial needs.

For Tracey Bleakley, chief executive at PFEG, a U.K. financial education charity, "the ability to make informed financial decisions is a key determinant of whether young people will be able to achieve their aspirations, whatever they may be".

A claim backed by a KPMG report released in 2009 with the Every Child A Chance Trust estimated that the U.K.'s failure to address early numeracy difficulties cost the public purse £2.38 billion ($4 billion) a year.

Teaching financial literacy

In Asia it is a very different story. Students in Shanghai came out on top on the PISA's financial literacy survey, followed by the northern Belgian region of Flanders, which runs its own education policies independent of the federal state.

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"The interesting thing with Shanghai", Adele Atkinson, policy analyst in the financial education and consumer protection unit at the OECD told CNBC is that "it seems that fewer than 10 percent of the students were in a school where the principal told us that financial education was available for the past two years".

However, she continued "there's some evidence suggesting that parents who are more educated will have a child more financially literate".

But U.K. adults show low levels of numeracy. According to a 2012 report by the U.K. Department for Business, Innovation and Skills released in October 2013, "England's performance in numeracy was significantly below the OECD average".

In 2011, roughly four out of five U.K. adults had a low level of numeracy according to National Numeracy – a U.K. charity focusing on numeracy issues - while in England, 17 million adults were working at levels roughly equivalent to those expected of children in primary schools.

England's approach to spilt financial education between its Mathematics and Citizenship classes is a good one according to the OECD's Atkinson. She pointed out that in Shanghai, financial topics have been in the curriculum since the 1970s and have been integrated in subjects like Ideology or Politics. This suggests that spreading financial education across the curriculum is more effective.

But for the PFEG's Bleakley, there are still some limitations to the English system as primary schools and "the growing number of Academies and Free Schools that are not bound to follow the National Curriculum will not be under any obligations to teach financial education".

"Until we see financial education taught in every school in the U.K., we will not be doing enough to prepare young people for the financial challenges they will face throughout their lives", she said.

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