UK falls behind other developed nations for financial literacy
Almost three quarters of people fall below the standards of a new Financial Literacy Benchmark, according to an investment firm.
A new report from Wealthify exposed the UK as a relatively weak performer over financial literacy in comparison to other developed countries such as France, Canada and New Zealand.
Wealthify has been collaborating with the independent economic think tank the Centre for Economics and Business Research (CEBR), to develop the first ever barometer in measuring financial literacy.
It’s a model that is designed to gauge people’s understanding of 10 frequently discussed financial topics and terms, looking at topic such as inflation, taxes, pensions, and savings.
The model was created through a panel of 2,250 interviewees which was nationally representative.
It’s a process which allowed Wealthify and the CEBR to design the benchmark by analysing previous models, and established criteria for measuring the understanding financial matters. The minimum score from the 10 questions is 6.5 to be considered as being financially literate.
It was found that the average respondent answered only half of the questions correctly, and only one in 20 got all ten questions right.
Young people score the lowest for financial literacy
Those who were aged between 16 and 17 years-old fared the worst over the questions, as they averaged just 2.3 correct responses. Fewer than half could accurately answer questions on the impact of high inflation on savings.
Despite mortgages being a hot current affairs topic, only 36% could answer mortgage-related questions compared to 65% from the whole sample.
It has raised concerns over long-term financial wellness and just how well prepared future generations are in being equipped with a satisfactory level of financial knowledge and skills.
Experience counts for financial knowledge
Experience was found to play a big part in financial understanding, the highest scores from the ten questions were in the 61-70 and 71-80 age groups, who scored 6.1 and 6.2 respectively.
Financial behaviour was also a huge factor in becoming more financially savvy. Seven of 10 respondents in the top quartile for financial understanding contributed to pension pots, compared to four out of 10 in the bottom quartile.
Saving rates for the higher end or 13% of the benchmark scale was significantly higher than the bottom 8% of the scale.
Regional disparities were also uncovered, with the highest number of correct answers found in the South West on 5.5, while the North East performed the worst on 4.3.
Financial literacy ‘an essential skill’
Andy Russell, CEO of Wealthify said: “The results of our inaugural Financial Literacy Benchmark assessment with CEBR show 16 and 17-year-olds lack vital knowledge about day-to-day finance. These are essential skills, especially as many of them are about to become financially independent for the first time, in a tough economic environment.
“It is a critical time in any person’s life, when they first have an opportunity to establish healthy money habits of their own and build confidence in financial decisions that can last a lifetime; something made even more challenging by the current cost of living crisis. The findings show a clear association between age, exposure to monetary decisions and choices over time, and levels of financial literacy.
“This suggests that earlier introduction to real-world financial decision-making could have a positive impact on young peoples’ long-term outlook. However, teachers have told us they lack the confidence and resources to cover these topics with young people.
“That is why we are working with financial and enterprise education charity, Young Enterprise, to launch free financial education tools in schools this September, designed to help 16 to 18-year-olds get to grips with essential monetary know-how, just as they reach financial maturity.”
Sharon Davies, CEO of Young Enterprise, said: “The new benchmark from Wealthify and CEBR offers important fresh insight into the poor state of financial literacy across the UK population – particularly among young people – and how that links to financial behaviour.
“Young people and students rank lowest for financial literacy. That lack of knowledge has a hugely detrimental effect on their financial health, with real consequences for the rest of their lives.
“The current cost-of-living crisis and move towards a more cashless society only increases the need to provide young people with a solid financial education. Any investment to improve young people’s financial literacy not only pays huge dividends to their lives, but their families, communities, and wider society.”