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Low financial literacy leads to poor mental health

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Written by: Emma Lunn
15/04/2021
A lack of financial education, skills and understanding is negatively impacting the mental health of young people in the UK.

The Claro Mental Health Project report, created in partnership with Mental Health UK and The Money Charity, found that low levels of financial literacy and confidence is undermining the mental wellbeing of young adults.

The report, based on the responses of 1,934 UK adults, reveals that a person’s mental wellbeing is significantly worsened by money worries.

Average Mental Wellbeing Scores – which assess 14 aspects of a person’s wellbeing – dropped by more than 37% from those with the highest financial confidence to those with the lowest.

The research found that respondents aged 18 to 34 have the lowest levels of financial literacy – defined by the Organisation for Economic Co-operation and Development (OECD) as ‘a combination of awareness, knowledge, skill, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial wellbeing’.

The average financial literacy score for adults aged 18 to 34 is 17% lower than the UK average. Meanwhile 12% of young adults also reported that they were concerned about their current and future financial situation.

By lacking the basic skills, understanding and confidence needed to build a secure and sustainable financial future, adults in this age range are being exposed to increased mental health implications. Mental Wellbeing Scores were 10% lower than those with a greater level of financial literacy.

Feeling good about yourself, optimistic and cheerful are some of the main aspects of mental wellbeing that have been shown to deteriorate when faced with a lack of financial comprehension.

While life experience may be a factor, these results suggest a deeper underlying problem in a lack of education about finances and money management taking place in UK schools.

Rachel Harte, head of financial planning at Claro, said: “Financial understanding and confidence is one of the foundation skills for life, especially in an economy like the UK’s which has many competing financial services and different kinds of debt that can entrap the unwary.

“The finding that young people have lower than average financial literacy underlines the need for a meaningful financial education, which is accessible to all UK adults from school age and beyond.”

Laura Peters, from Mental Health UK, said: “We have long been aware that mental health and money problems go hand-in-hand, with many people finding themselves in a vicious cycle of their money problems exacerbating their mental health problems and vice versa.

“We hope this research will encourage people to understand, manage and improve their financial and mental health by learning about finances, and utilising tools such as our mental health and money toolkit to start to take control of their finances.”

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