EDUCATION, education, education — and at every age — is viewed as the solution to the falling level of long-term savings and the British weakness for the worst financial deals.

Financial education’s many supporters argue that if individuals receive a thorough grounding in everything from Serps to Sipps, they will make more informed choices when shopping for credit cards, mortgages and pensions and be less likely to fall for financial scams.

As part of the drive to create a new generation of savvy consumers, personal finance is now a part of the national curriculum, as we report on pages 4 and 5.But adults should also take time to study the past investment scandals that have either deprived millions of their life savings or drastically reduced their retirement income expectations. The personal pensions debacle of the Nineties, when hundreds of thousands of workers were wrongly persuaded to leave company schemes, illustrates the danger of unscrupulous commission-seeking salesmen. If you want advice that is truly independent, pay a fee. The endowment mis-selling scandal highlights the need for scepticism about growth illustrations. Do not simply accept the company’s projections for your investment, ask for a worst-case scenario. Homeowners were promised that the endowment would definitely grow at a sufficient rate to cover their mortgage debt. The risk — that they would be left with a shortfall to pay at the end of the mortgage term — was not made explicit.

Moreover, as endowments became increasingly popular, insurance companies sought to make their products more competitive by lowering the premiums that homeowners had to pay. As they did so, they actually increased the risk to the homeowner that the endowment would not be large enough to cover their mortgage.

The financial services industry is as prone to hype as any other. Marketing departments tend to play down the risk involved in an investment, promising prospective customers the impossible combination of safety and an above-average return. Split-capital trusts are a classic example of a good investment which became overmarketed, overhyped and overcomplicated.

Split-caps, a specialist type of trust which issues different classes of shares, became popular — like so many savings plans — in the 1990s, when share prices were rising rapidly. Split-caps issue income shares, growth shares and, most popular with small investors, zero-dividend preference shares, known as zeros. Zeros were marketed by investment houses as the ultimate in safe investments. But when the technology stock bubble burst in 2000, it emerged that many split-capital investment trusts had not only borrowed heavily, but they had borrowed to invest in the shares of other split-caps so that they might be able to offer tastier returns. As the “magic circle” of split-caps turned into a vicious one, 20,000 investors lost £600 billion.

The lesson is plain: never put all your eggs in one basket. If something is billed as an ultra-safe investment paying a high return, ask questions. Don’t buy anything you do not understand and ask yourself why it needs to be so complicated. What are they trying to hide? The collapse of Equitable Life tells us that no investor, however well informed, can protect himself if a company’s board is both intransigent and incompetent and the watchdogs fail to bark. The world’s oldest mutual insurer was brought to the brink of bankruptcy by years of financial mismanagement, exacerbated by “manipulation and concealment” by the board and complacency on the part of the regulator.

In the 1980s, when markets were booming and both inflation and interest rates were high, Equitable Life offered guaranteed annuity rates to members who bought its pension plans. In other words, members were told that they would be paid a certain annuity rate — from about 8 per cent to 13 per cent — when they retired, regardless of prevailing market conditions. This was a rash promise, particularly given Equitable’s generosity to its with-profits policyholders in the 1990s.

This drained its reserves, leaving it unable to meet obligations to guaranteed annuitants. When Equitable lost its High Court battle, however, it was with-profits policyholders who saw bonuses cut.

There may be considerable backing for lifetime education in money matters, but there is still scepticism about its effectiveness, with some experts believing that it is dangerous to allow people to presume that they can outwit a conman. Roddy Kohn of Kohn Cougar, a leading firm of independent financial advisers (IFAs), says: “I don’t agree with educating consumers — it’s patronising.”

Instead, Mr Kohn suggests that we should be guided by a few simple precepts. Trust no one, be sceptical, ask questions and never buy anything that you do not understand. Monitor your investments closely. Do not believe that the Government will bail you out if things go wrong. Assume that economic and market conditions will change suddenly and for the worse. And finally, diversify, diversify, diversify.

The first steps

The Financial Services Authority’s website (www.fsa.gov.uk) has a good consumer section.