An official government study into Britain's personal finances reveals a lost generation of 18- to 40-year-olds unable to cope with debts and soaring house prices, with alarmingly low levels of savings and little hope of building a decent pension.

The study, by the Financial Services Authority (FSA) and Bristol University, published today, is the biggest of its kind undertaken in Britain. It paints a picture of a generational divide fuelled by higher education costs and the collapse of company pension schemes - with 42% of adults now with no pension and 70% with no meaningful savings.

The FSA will call today for a new national strategy to improve Britain's financial capability, including workplace-based financial seminars targeted at 4 million employees; making personal finance more prominent in the national curriculum from 2008; and "money doctor" packs which will be sent to 1.5 million new and prospective parents each year.

FSA chief executive, John Tiner, said: "There is an urgent and serious need to help the young. They are the first generation to be leaving college with massive debts, and while housing has always been a challenge, it's become extremely difficult for young people in parts of the country. Yet at the same time the young have become serious consumers. It was difficult for an 18-year-old to get a credit card 20 years ago but today it is relatively easy."

Around one-quarter of adults aged 20 to 39 have fallen into financial difficulties over the past five years, compared with 5% of over 60-year-olds, said the report.

It highlights a striking generational gap with regard to credit; 24% of young adults are currently overdrawn, compared to 11% of over-50s and just 4% of over 60s. The study blamed financial problems among 18- to 40-year-olds not on low incomes but on rapidly changing economic and social trends presenting young adults with greater challenges than their parents. "Even after lower incomes and limited experience are taken into account those in the 18 to 40 age group are less financially capable than their elders," said Mr Tiner.

In a simple quiz on money matters, young adults scored particularly badly. Over 40% of 18- to 20-year-olds failed a question on interest rates and percentages, compared with 14% of people aged 50 and above.

The education secretary, Ruth Kelly, said the report highlighted the need to make personal finance education "more explicit in the national curriculum" and promised support for teachers "to bring this to life in the classroom". But Help the Aged criticised the report which, it said, ignored the needs of older people.

The worsening outlook for pension provision highlighted in the report is likely to fuel demands for a higher basic state pension, as recommended in the recent Turner report but fiercely resisted by the chancellor, Gordon Brown. It is also likely to spark fresh debate about introducing compulsory pension saving.

The report said 81% of people of pre-retirement age think the state pension would not provide sufficiently for their old age, yet four out of 10 people are not paying into an occupational or personal pension to top up their state pension.

Worries over Britain's £1 trillion debt mountain may be overstated. The report found that only 1% of over 18-year-olds - equal to 500,000 people - have severe financial problems, although 6% of people (around 2m households) face a "constant struggle" to keep up with commitments.

Bristol University conducted more than 5,000 45-minute long interviews at home with respondents across the UK as part of the FSA research.