Financial knowledge – a bridge too far for most?
Kerry Freeman is well up to speed when it comes to knowing her rights when she’s out shopping. “If I buy something and it’s faulty I know I’m entitled to a refund,” she declares. “And I’m not the sort of person who will go all shy and retiring if I think I’ve been ripped off.”
But there is one area where Freeman struggles with her knowledge – personal finance. “When it comes to things like insurance, credit cards, mortgages and savings accounts I’m lost,” she says. “I know I’m told to compare credit cards and compare travel insurance and so on but I’m not sure I can do that very well.”
Freeman should be respected for her honesty – and she is not alone in her ignorance of all things financial. Research recently compiled by secured lender Picture Financial has shown that only six per cent of people know their rights when they make a purchase of a financial product, or a saving and investment.
Indeed, Picture found that British adults are four times more likely to know their rights when buying lower-value goods such as food and clothes, than when buying a financial product.
When it came to ranking their knowledge of consumer rights in different retail sectors, personal finance limped home in a very poor last place. This meant that 42% of the respondents felt that they were not getting the best deal on interest rates and charges on their existing credit and borrowing.
The research also showed that this knowledge gap is having an impact on how people manage their money, with over 1.8 million saying they never reviewed or sorted out their finances. They are unable to compare credit cards or compare savings accounts usefully, for example, with 7.5 million saying they did not understand financial terms.
“There is a sharp contrast in the time and energy people put into finding the best deal for everyday goods and services compared with how they manage their money,” says Julia Dallimore, marketing director at Picture Financial.
“We are increasingly a nation of savvy shoppers, able to take on vast amounts of information to evaluate what best meets our needs. However, our research shows that this doesn’t extend to financial services and many people could be missing out on better deals on their finances as a result of this knowledge gap.”
Retired financial adviser Peter Stanway agrees, but does not see how the problem can be solved. “Personal finance has this reputation of being ‘difficult’ and people tend to shy away from it,” he says.
“I have heard of many initiatives over the years to run personal finance classes in schools and what have you, but they have never been officially adopted as part of the national curriculum. And, quite honestly, with many pupils performing badly in academic terms in other subjects, what hope is there that they will pay any more attention to lessons in personal finance?”
Chris Tapp, associate director at money advice charity, Credit Action, says: “Sorting finances may not be an exciting or sexy thing to do with your time, but it is crucial that people are regularly taking stock and researching the best financial options open to them. Consumers will commit significant time to shopping around for a bargain and, if they applied the same dedication to their finances, they could really see the benefits.”
He may have a point but in saying that time spent on finances is not ‘sexy’ or ‘exciting’, perhaps Tapp is perpetuating the problem. We need to make personal finance both of these things and a lot more besides – and that is one of the abiding challenges facing the industry.