Is financial literacy particularly poor in the uk?

[latetothefisting]

Just something I've been pondering. Based on my work experience, and threads on MN, MSE, etc. Is financial literacy particularly poor in the UK, (and apart from my own anecdata, apparently we rank ranks below OECD average www.fincap.org.uk/en/articles/levels-uk) and if so, why and what can we/should we do to improve it?

E.g. there's a thread atm where a poster is asking what the advantages are of using a credit card to book a holiday, something I thought was obvious (greater protection, building credit score, even occasionally cashback) but apparently not. Loads of posters who don't understand their electric and gas bill, why they need to know their standing charge and charge per KWh rather than what the energy company says will be their dd per month (and why that might not be accurate). From work people who don't understand that they have to pay their council tax monthly or upfront, not after the year has ended, or the difference between necessities and luxuries and how to budget for both. From the MSE forums, people who have run up huge debts (and are now, fair play smashing reducing them) because they never knew basics like they had to pay back credit cards, plus interest. Nobody in my workplace understands how our pensions accumulate! And these are all what I would think of as basic things essential for general living, not even going into investments, stocks and shares, crypto and NFTs, compound interest or anything particularly complicated.

Apparently despite being comparatively rich we have one of the worse savings rates (as a percentage of our disposable income) in Europe, by a huge margin.

Not knocking individuals at all - I'm a firm believer of you don't know the things you don't know - and I'm sure there are loads of things I don't know that others would think is basic general knowledge. Just wondering WHY so many people don't know these things - is there a vested interest by the govt in keeping us financially illiterate? And how can we improve things - it's easy to say basic finance should be taught in schools, but what do we remove to make space for it? But if it's not for schools, but for parents to teach their kids, how does that work when the parents don't know themselves?

As a maths teacher I totally agree with you. I had the luxury with my Year 11s last year, when we knew there were no exams and I had enough evidence for their grades, to be able to address some of these financial issues.
We looked at credit cards, student loans, bills, cost of renting, mortgages, budgets, phone contracts, insurance etc. They absolutely loved it and found it very interesting.
The Maths specification has next to nothing on these topics, whilst being overloaded with pointless skills which are generally there to help the students who want to progress to A level.

PHSE lessons also include money management, but one or two stand alone lessons is nowhere near enough. It should be a regular topic throughout school, but then I also think that about First Aid, parenting skills, relationship and mental health guidance. The school curriculum is focussed on exams leading to University, not life skills needed by us all.
As a parent I did teach my kids all I know and they are very good at managing their money. Unfortunately many parents are not in a position to do this, as they are not confident enough managing money themselves.
I would like to see it on the Maths syllabus. However, there would probably not be enough time then to cover the skills needed for A levels and beyond. Depends on your priorities.
I talk about ‘financial health’ in the same way as mental health and believe they are linked. More should be done to help our young people to cope with the real world and surely the 11+ years they spend in school should be the ideal opportunity!

Yes. Martin Lewis helped to create a textbook of stuff like this for schools, which can be downloaded for free. But obviously fitting it in to the syllabus is another thing entirely. It feels like such an important thing though as not everyone has parents who either care enough to educate their children or, perhaps more likely, they just don't know enough about it themselves. People will say it's not school's job to educate about this kind of thing, but in terms of what kind of difference it can make to someone's quality of life in the future, it seems like maybe it should be.

Here is the textbook:

www.moneysavingexpert.com/news/2021/10/first-ever-financial-education-textbook-arrives-in-welsh-schools/

A brilliant resource @hugasauras, thank you for sharing.
You’re right, where can we fit it in? Even Martin Lewis at his break neck speed would struggle to fit it into the one hour I’ve been given this year in PHSE for ‘money matters’ !
And yes, you’re right, this could make so much difference to the future life experiences of our children.

I don't know whether it's worse in the UK or not but I definitely agree there's a gap. I think TV is a big problem because kids (and adults) see so many portrayals of "normal" lives that wouldn't work financially in the real world, and that screws their idea of what they can expect to afford for themselves. Then it's made worse by the social taboo on discussing money and how much you earn.

I think kids' education should include going through various real jobs, saying "this is how much this job pays" and then working out what that will pay for in terms of housing, food, utilities, transport, clothing, holidays, lifestyle etc, and how pension and saving considerations need to be brought in as well.

I don't think that it's financial literacy that's so different between uk and other places, but rather the system works diffently in the UK. Compared to the two eu countries I've lived in, the UK makes it really easy to borrow money. Also there isn't such a huge ethos of saving and debt is more acceptable.

I've never really be taught any financial management, but just picked it up when I had to live by myself. I mean I've never even heard of mortgages until I came to the UK!

I think it is, but my experience is skewed by working with vulnerable families.

I remember being shocked the first time a client referred to having £50-something "left" on their credit card, and realising they meant £50 available credit, not £50 outstanding balance.

Many clients have been genuinely mystified as to why their debt is only going down £10 when they're "paying £40 a month off it". They don't understand interest, they don't understand how to compare different deals, they lack the nous to shop around or use comparison sites and are very vulnerable to sales spiel.

Budgetting and financial management should be taught in schools imo.

The information is all there if you want to know. The amount of interest is stated on the credit card statement for example. Plus sites like Moneysavingexpert set out easy to understand information on just about any financial topic you could imagine, including warnings about all the common pitfalls.

Utility bills is another example. All the recent threads of the 'my supplier wants to increase my DD by 200% when the price cap is going up 54%' variety where it turns out they are totally oblivious to the fact that the direct debit is only an estimate of the average monthly cost, and often quite a bad one.

@BarbaraofSeville

The information is all there if you want to know.

You can say the same of absolutely everything "taught" in schools. Why teach algebra or trig or shakespeare or a foreign language or gravity? It's all there for people to teach/research themselves.

Personally I think that secondary schools concentrate too much on the academic side of things and far too little is done on practical matters. It's as if back in the 70s, when grammars and sec mods were merged, all the effort was to make all schools comparable to grammars. Same way as Blair decided to aim for 50% of children to go to Uni. Far too much emphasis on academic and nowhere near enough on real-life/practical skills. That just means the less academically able just turn off and become disenfranchised. Like the "I can't do Maths, me!" type of people who gave up on anything to do with numbers long before they have to deal with their own real-life finances.

Yes, a credit card statement may say the interest rate, but lots of adults (even those with good qualifications/jobs) simply can't work with nor understand a percentage. Same with energy bills - yes, lots of information on the sheet of paper, but someone who has lost their confidence with numbers simply sees lots of numbers on a page and doesn't understand what they mean.

I agree with you about the "bad" estimates, @BarbaraofSeville.

I've never been in debit at the time when they reconcile the actual consumption with their "estimate", not with any supplier. Last year, I was £100+ in credit. I let it roll over, and expect it to be a bit less now, as we've just had the most expensive couple of months, but even so, the credit has only been going down a few pounds each month.

Yes, a credit card statement may say the interest rate, but lots of adults (even those with good qualifications/jobs) simply can't work with nor understand a percentage^

I struggle to understand how this can be. It's very very simple basic primary school maths.

It seems that there is a lot of pride in not understanding numbers. Baffling. You see it on here all the time. People will literally post 'please help me work this out' and they're asking what 30% of 430 is.

And people answer them in all seriousness and if anyone comments that surely they don't need help with that and they're torn to shreds.

Yet if someone uses their instead of there, puts in the wrong place or is tripped up by autocorrect, you have endless posters telling them how thick they are because they made a mistake with their written English.

that's 'puts a comma in the wrong place'

Muphry's Law strikes again.

See in some instances I would agree that we live in a world where information is available quicker and easier than ever before.

But again sometimes it's an issue of you don't know you don't know - if all the adults around you max out their credit cards or use payday loans companies to get things like fridges rather than buying them outright, or say its fine to not pay your council tax because even if it goes to court it just ends up coming out of your benefits as a tiny deduction so it works out fine, or if you see influencers getting huge hauls and assuming that's normal....how do you learn that's "wrong" if you don't have other examples?

Plus even though "good" information like the MSE textbook is out there there's also a lot of terrible advice, so how do you know what's good or not?

Good point that not being able to read still has a stigma of being shameful (see the Jay Blades programme) yet financial illiteracy is accepted as normal and in some cases a bit of a brag/joke.

@BarbaraofSeville

I struggle to understand how this can be. It's very very simple basic primary school maths.

I agree, it seems to be acceptable to be crap with numbers. As you say, barely anyone criticises someone who "can't do Maths", yet people get ridiculed if they get an apostrophe wrong.

I've worked with numbers all day, every day, for nearly 40 years. As part of that work, I've worked alongside pretty well educated people (including teachers and other professionals) who are simply crap with numbers, to put it mildly. I'm talking the kind of people who literally can't add 20% to a sales invoice without software doing it for them, they can't even do it with a calculator as they just don't "get" percentages at all. Even £100 plus 20% VAT is beyond them without accounting software or an app, they just don't have the confidence/sense to use the % button on a calculator nor multiply by 0.20 for the VAT (or 1.20 for the total). Complete lack of ability/confidence. I used to find it baffling and at the start of my career, I'm afraid I would rush through explaining a set of accounts or tax return as, in reality, they're pretty simple as just basic additions, subtractions and percentages, and would watch the client (or new trainee) just glaze over, and I'd think they just weren't interested. But now, with the benefit of many years of experience (and a few years teaching accounting at our local college), I've realised that a huge number of adults are very lacking in the basics of numeracy, and now when I meet a client to explain their accounts/returns etc I go right back to basics at a "noddy" level. Same with explaining VAT etc - I no longer just glibly say "add 20%", under the assumption they understand what that means and how to calculate it, I give them a kind of basic "lesson" as to what a percentage is, how to calculate a simple percentage like 20% without a calculator, etc., and you can almost see their confidence grow in front of you!

Schools REALLY need to do more to get ALL their pupils confident with the basics before they start moving on to the more complicated Maths areas such as Trig, algebra, etc - when a pupil isn't fully competent/confident with simple things like percentages and fractions, they've simply not got the "tools" to do anything more advanced.

Pension rules in this country are absolutely baffling even to financially literate - however no excuse to not understanding how accumulation works.

If only some enterprising charitable sort would develop a realistic game of life type app for adults kids

I think tik tok is a good tool for short accessible financial education- trouble is there's a lot of fake bullshit too.

I would say the problem with contraceptive literacy is even worse.

Even numerate clients struggle with the difference between inclusive and exclusive percentages, i.e. if something "costs" £1.20 and they need to work out the VAT, they just take 20% of £1.20, to get £0.24. Whereas in reality, it's £0.20, i.e. £1.00 plus 20% VAT is 20p so £1.20. Same with mark up and gross profit, one being the percentage on the net, the other being the percentage on the gross. In fact, just writing that, far too many people don't even understand the difference between gross and net. And, sadly, some of my clients who struggle with that kind of basic financial maths are pretty highly educated people, including the likes of IT consultants/computer programmers etc who you'd really think would have a much stronger grasp of the basics as they've almost certainly done Maths at A level if not degree level, but whilst they can do the advanced stuff, they often struggle with the basics when in a "real life" context rather than an advanced context.

@Rodedooda

Pension rules in this country are absolutely baffling even to financially literate - however no excuse to not understanding how accumulation works.

If only some enterprising charitable sort would develop a realistic game of life type app for adults kids

I think tik tok is a good tool for short accessible financial education- trouble is there's a lot of fake bullshit too.

Do you really think the pension rules are baffling to the financially literate?

I don’t. If you’re financially literate then there’s a wealth of clear explanations on the internet and from websites it would be reasonable to assume were clear and up to date.

@Cocomarine

Do you really think the pension rules are baffling to the financially literate? I don’t. If you’re financially literate then there’s a wealth of clear explanations on the internet and from websites it would be reasonable to assume were clear and up to date.

That depends on the base level of the person, both from a financial knowledge and numeracy point of view. If the person doesn't even understand basic percentages then literally anything mentioning a percentage is immediately outside their comfort zone and they'll probably switch off rather than even trying.

I really don't think people generally realise just how poor is the basic numeracy of a far too great a proportion of the population. Unless you see it in reality, it's hard to grasp that so many people really havn't a clue!

I've seen people add up a short column of figures using a calculator and writing down a completely ridiculous total at the bottom of the column, that couldn't possibly be right, yet they don't have the confidence/ability to apply the slightest bit of logic nor common sense that should be telling them the glaringly obvious fact that the number they've written is stupid. They've so little confidence in numeracy that even perhaps they look at the figure and have doubts about whether it's right, but just assume "I can't do Maths, me!" and just accept the total is right and that what their head is telling them is wrong.

Do you really think the pension rules are baffling to the financially literate?

Yes once you get into lifetime and annual allowances, tapering, carry over, salary sacrifice, what actually counts as income and how it works if you have multiple schemes one of which is defined benefit. Admittedly someone earning enough to hit those complexities is probably also financially aware enough to dig out the answers but it takes time. Also one often has questions that the online sources don't exactly answer and what seems like a sensible extrapolation / interpretation is still ultimately a guess. Which is why even financially literate people often chose to pay pension advisers to understand the rules for them.

@user1497207191 I agree with you about the base level of literacy.

A friend in an online sports group I’m in yesterday wanted to know which paid more, £x salary for y hours, or £a salary for b hours. No added complication of benefit impact, or changing tax band. Simply unable to divide x by y and a by b, and compare.

I was specifically questioning the poster’s opinion on the financially literate find pensions baffling.

[quote Cocomarine]@user1497207191 I agree with you about the base level of literacy.

A friend in an online sports group I’m in yesterday wanted to know which paid more, £x salary for y hours, or £a salary for b hours. No added complication of benefit impact, or changing tax band. Simply unable to divide x by y and a by b, and compare.

I was specifically questioning the poster’s opinion on the financially literate find pensions baffling.[/quote]
Re pensions, I think the main problem for the "financially literate" isn't the Maths, it's the sheer breadth of different schemes, different options, different rules of different types of scheme as regards death in service benefit, dependant's pension or lump sum on first death, etc etc. Even finding out what type of scheme they're in can sometimes be hard, even more so if they've moved employments and have a few different pensions, then they have to navigate different rules/benefits for each of the different types of scheme. So, re pensions, I don't think the problem is mathematical at all, I think it's more a matter of understanding detail, comprehension, etc., i.e. perhaps more of a literacy/logic/legal issues rather than basic numeracy.

@OooPourUsACupLove I appreciate your point of view. Like you, I think many of the more complex aspects of pension savings come into play more when you earn enough that you’re probably financially literate enough to understand it - or to pay for advice.

I’m interested because I definitely see a perception on this board itself that pensions are complicated. I love it when someone asks though! And from threads I’ve seen, they go away with a, “ah - got it!” feeling!
I think - for the financially literate - the perception that pensions are baffling is disproportionate to how complex the vast majority of widely relevant pension legislation is.

I think in your VAT example @user1497207191 it could be that your clients are just being bit lazy. They haven't looked at how it's calculated rather that they can't understand it.

I would say that I'm good with numbers, but I also get confused about interest, tax and mortgages if I don't sit down and work through it all. Some of the stuff can be counterintuitive! It took me quite a while to work out which mortgage is best based on interest and fees.

Pensions ARE complicated though.

As for putting money in, you have to check limits as to how much you can put in, then you have to choose which pension provider to us (though obviously if a workplace scheme, then you have no choice usually), then choose what kind of fund to invest in, then learn about the different tax reliefs, i.e. basic rate done automatically between HMRC and pension fund, but higher rate to be claimed on a SA return, and of course, learning how the pension contribution reduces your "earnings" for things like child benefits, which in itself is complicated as it matters whether pension contributions are taken out of gross or net income, etc etc.

Then, you've got to think about "retirement", i.e. taking 25% tax free lump sum or deciding to leave it invested. Timing of taking the tax free lump sum if you want to take it. Thinking about inheritance tax, i.e. fund value going straight to nominated beneficiary if before "retirement" IHT free. Comparing options of a draw down against an annuity etc etc.

None of that is particularly hard/confusing in itself, but it's the sheer number of decisions to be made and the choices/consequences of each decision.