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?

@Callisto1

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.

Perhaps, but it seems more that they just don't even think they need to check how to do it - it's the old adage of "you don't know what you don't know".

@user1497207191 interesting! You see, I don’t equate the phrase “financially literate” as 1:1 with “numerically able”.

Financial literacy to me is everything you’ve described - it even has the word literacy

So that explains our different view, perhaps.

To me, the financially literate person doesn’t move from scheme to scheme without filing away their last paper work from previous employment pension. And that person knew all along what type of scheme it was - because they made sure they checked.
Financial literacy is an attitude, as well as ability.

And of course, harder to have the attitude without the ability, be that English comprehension or mathematical skill.

Another anecdote… I was surprised at a solicitor friend moving to public sector, moaning that the pension was rubbish in comparison, because she had £70K in her old private firm pension (not a big firm!) but now the amount off her pay was tiny.

She had NO idea that the LGPS employer was making a contribution. She thought it was just her contribution going into a pot like her old DC. No idea that she was getting index linked DB for life!

A fully qualified solicitor - so there can’t be any question of ability to understand documents. She’d never looked.

I know that “you don’t know what you don’t know”, but there’s some personal responsibility there surely? When your new employer gives you the scheme booklet, and you’re a flipping lawyer, maybe glance through it? It’ll be written in clear English these days, all the fancy graphics.

That’s what I mean by financial literacy including a component of attitude.

Is that attitude lacking more in the U.K. than other countries?

I have been utterly financially illiterate most of my life - through ignorance and lack of education.
I'm going to do an online course hopefully as I'm determined my dc's won't be like me.

Schools teach it but teenagers have to pick the qualification and pay attention which is where it falls down.

As someone will have inevitably said, in the UK there is a culture of it being acceptable to have weak maths skills where as illiteracy is seen as shameful.

I was in Boots today and walked past their 50% off section (left overs from Christmas) and there's literally a chart with the old price and new price. It is embarrassing that anyone over the age of 11 needs a chart explaining that something that used to cost £6 is now £3.

Marin Lewis has single-handedly done far more than anyone else for financial education, but so many people don't even watch his tv programme, let alone use the website.

It is so sad because it is all free.

I also despair that so many people are scammed when the BBC has such excellent programmes such as Rip Off Britain and Watchdog which have been warning about scams for decades.

@user1497207191 I hope this comes across as discussion, not argument, as I’m nodding along to your posts!

Semantics really perhaps - but I’d say I agree pensions in their entirety are complex, but I don’t agree with a PP’s suggestion of baffling, even to the financially literate.

Everything you’ve listed is true… but these aren’t decisions that have to be made blind, and all at once.

A huge % of our population is employed in the public sector with NHS, TPS or LGPS and paid under £50K. They don’t make fund choices, they don’t do SA, they don’t have to think about tax relief or CB impact. They don’t have to actively do anything. But still, I meet people often who have no idea how their pension schemes work.

They’re in schemes with Unions to help, the material produced by the employer is often pitched at a fairly low level.

I do not believe that teaching how to make a % calculation back when they were in school would help.

I don’t know the answer… but I do think that one section of people who don’t understand their own pension (so not even the full complexity!) are like that because they cannot be bothered to look. Simple or baffling, they just don’t care. I’m not sure how you reach them.

I completely agree; I have long felt that there is a place within education (at all levels) for not just financial literacy, but to cover what my young relaties might call "adulting". I have so many friends who claim to not understand the basics of financial literacy, politics, legal matters etc - it is utterly infuriating that people feel so bamboozled by basic concepts, often because they've generationally been conditioned to think that it's not the done thing to be competent in these areas, or that it's not for them to be inquisitive about these things. Colleagues are baffled that I take an active interest in our workplace pension and its investment allocations etc, that I don't need to look up how basic accounting principle work etc (I am not an accountant, far from it!).

I'm currently dealing with the probate of my late mother's estate, and the sheer number of people who have done the whole "sucking air through their teeth" like a builder about me handling matters myself rather than instructing a probate practitioner is bizarre. I'm a well educated woman, with a First Class Science Honours degree who works in a complex and technical field, but apparently the mysteries of probate are such that it's just too complex for me to deal with apparently.

I often joke that we should have Haynes manuals on basic concepts like this that are issued to everyone; I long for the time when a Haynes manual could solve the problems in my car!

@Cocomarine

To me, the financially literate person doesn’t move from scheme to scheme without filing away their last paper work from previous employment pension. And that person knew all along what type of scheme it was - because they made sure they checked. Financial literacy is an attitude, as well as ability.

If one defines "financially literate" as "aware of and on top of every aspect of finances that might affect them in great detail" then of course the answer to any question of the form "Would a financially literate person be baffled by X?" is no, because that's baked into the definition!

However, it also means the number of people who are "financially literate" is relatively low. If you want to use that definition you probably need to consider three groups: the "financially illiterate" who really don't know the basics, the "financially literate", and the "financially semi-literate" who know the basics and are generally on top of their day to day finances and cashflow, but don't necessarily understand the underlying mechanics and rules that would help them make the best decisions about which financial products to use when.

@ILoveAllRainbowsx

Marin Lewis has single-handedly done far more than anyone else for financial education, but so many people don't even watch his tv programme, let alone use the website.

It is so sad because it is all free.

I also despair that so many people are scammed when the BBC has such excellent programmes such as Rip Off Britain and Watchdog which have been warning about scams for decades.

@ILoveAllRainbowsx I agree with Martin Lewis.

For example his shows on credit cards have been illuminating as they have had to use Maths professors to show why it is difficult to calculate the interest.

His campaigning has actually made it easier for people to understand credit card statements as companies now have to put clearer information on them.

However I disagree with you on some of the scams that are doing the rounds. The online and text scams are deliberately designed to fool people if they are either vulnerable, due to their lack of technical knowledge, or when they are distracted.

@Cocomarine

Yes, I see what you mean, but your solicitor example is more a matter of them being lazy/disorganised rather than whether they're "financially literate" or not in a sense of whether they'd be capable or not if they could be bothered!

I know the kind of person you mean though. I once had a very well paid self employed IT consultant client. His "books" (well, a spreadsheet actually) were an absolute shambles. He just didn't care. One year when I did his year end accounts, I noticed a drop in income and dug a bit deeper into his accounts to see if I could find the reason (usually there'd be a reduction in hourly rate on change of contract, or a gap between contracts, or a long holiday or whatever so basically part of my job to give it a "sanity check"). He'd invoiced for far fewer days than in a normal year and I found his usual "holiday" weeks in Summer etc but there was a large unexplained gap of 4 weeks with invoices before and after for the same client, same rate, etc so I asked him what he was doing for those 4 weeks. He just glibly replied that he was working as normal, so I highlighted the missing invoice/payment and that total income was lower by similar amount - he again glibly replied that I must be wrong, it's all fine, etc etc. I asked him to send me copies of all his invoices which he reluctantly sent, and, yes, a full 4 week period was missing. Even presented with the facts, he still couldn't care less, and just brushed it away saying it "must" all be fine etc. I persisted (I can make myself a PITA at times) and he finally accepted he'd not invoiced for the time, hence not being paid. We're not talking peanuts here, it was something like £10k, and I found his attitude absolutely baffling that he just couldn't be bothered to do his invoicing/book-keeping right in the first place, and even when told he'd missed a huge amount like that, he still couldn't really be bothered! Even when he invoiced them and got paid, he never thanked me!

If he couldn't be bothered about £10k of "lost" income, I think he'd probably also be too lazy to read his pension paperwork (not that he ever bothered to set up a pension as long as I knew him either).

I think the PSHE syllabus needs a shake up. There should be several sessions each year for financial matters, plus things like the basics of government and the electoral system, and the basic structure of the legal system.

I think it is terrible that we don't explain to kids how debt, pensions, mortgages, tax etc works and how to manage their affairs.

This kind of thing can help social mobility as currently kids are reliant upon what their parents can teach them, many of whom have very little understanding themselves.

Yes! Financial literacy is that bad in the UK. I used to be a financial adviser and even incredibly wealthy a surprisingly financially illiterate.

The amount of people that have no protection polices in place is astounding.
The amount of times I’d got screamed at by clients moaning that their only paid 0.2% on savings not understanding that the days of high interest savings accounts are long gone and instant access accounts are a crucial part of being financially robust but they aren’t designed to support long term savings and they fine for what they are… instant access accounts:
People don’t understand how banks make money think it’s just stinginess meaning low interest rates
People don’t understand inflation
People think that investments are this wolf of wall street gamble not understanding that their pension is an investment with just a tax efficient wrapper on top
People don’t understand that cash savings deposits aren’t without risk

It’s truly remarkable and frightening

It is poor.

I think I am OK in terms of financial literacy (self taught) but I still don't understand half of Kanfuzed's post.

I was talking to my mum today because she is struggling with care home fees for my grandad and can't understand why they are so high, I found a figure that said dementia care is 30k-80k per year and she said they must be making millions, because "hardly anyone earns 30k!!!" as though it was a six figure salary. I said well I think the average wage is over 30k now, and care home staff probably earn about that much. But it's so bound up in emotion for her, I almost feel bad talking about money because it makes her panic.

There was another thread here the other day saying "They can't expect us to pay £240 for electricity?"

It is the same kind of thinking and it makes me wonder who they think this mysterious "they" is who want you to pay £240 per month for electricity or £1k a month for care, and why the question is "they can't expect us to pay/afford that" - is it a thought process that this figure is greed or just made up out of the air?

Do you think it's a class thing?

I think it does need to be taught in school but not in the maths lessons but as addition.
There needs to be classes e.g. home economics that teach you the basics of what you need to know to run a household- budgeting, being able to cook a few basic meals.

The ideal would be that this is all taught at home, but we all know it isnt.

The problem is I know when I was that ag4, any of the Lessons that weren't proper GCSE'S, were a doss session. In one ear and out the other. Just an excuse to mess around.

It might help a limited amount of students,.but the rest will be no better off than if it wasnt introduced.

I'm pretty financially literate, having spent some years working in accounting - variously for a bank, an insurance broker, a firm of chartered accountants and an IFA.

However, some of the small print and choices available, particularly with pensions and life insurance, is baffling to me, so how the man/woman in the street manages, I have no idea.

I was a pension rep for a consultation at my workplace which was about a potential change from a defined benefit to a defined contribution pension. I have an Economics degree, am a part qualified accountant and consider myself financially literate. It was a LOT of work to comprehend all the issues fully and even harder to explain them to others clearly.

Pensions hit a toxic triangle of boring, important and scary (you have to estimate how long you might live!)

This is a very interesting discussion and there are clearly so many components to becoming financially sophisticated, it is hard to know what should be the core to feel "financially literate".

Several people have mentioned "being engaged" with a topic, in various ways, and actually I think that has a lot to do with it.

Do people know how a bank overdraft works? If they needed to actively request one, the likelihood of paying attention to fees and charges and interest rates at the point of request, might be a lot higher. I was startled to realise when I moved to the UK some 20 years ago, that the default was for bank accounts to come with an overdraft. I've come to understand that that probably partly reflects salaries being paid monthly, but I'm not convinced it is a good thing. It did explain though why we had such trouble setting up accounts in the first place (naively I thought we could set an account up before we moved and transfer money here ready to use...).

Do people understand how they are taxed? Well, they probably get a pay slip indicating money taken out for tax and NI, but they don't have to do anything with that information. Growing up in Australia, I recall a little bit of tax table work in maths at some point, but it was when I had to do my first tax returns that it actually had meaning for me. Now, there would be a massive increase in infrastructure needed to make everyone do a tax return in the UK as is the rule in Australia - but it might make a difference to how much attention the majority pay to what happens to their earnings.

Pensions .... not sure I should go there. Suffice to say I've read some scary things about how hard it is to find an accountant who actually understands the NHS pension schemes and the govt rules sufficiently to advise registrars and consultants accurately!

@Porfre

I think it does need to be taught in school but not in the maths lessons but as addition.

I'm not so sure, I think some of it could be covered in the existing Maths curriculum without changing much. Such as using "real life" examples more when teaching percentages, algebra, etc. Like an older version of way that a pizza example is used to teach fractions in primary school (which seems to work very well). I'm sure a lot more could be done to use, say, examples of the way a credit card, loan or mortgage works to show the effects of compound interest and then extended to the next level which would be to show how much more quickly and how much less interest would be charged if over-payments were made instead of minimum/fixed lower payments.

Last time I sat in a year 7 maths lesson the text book had many of those practical applications of numeracy. My daughter's primary homework has also featured practical budgeting and money questions.

It is there in school but I'm not sure how "real" it all is to under 16s.

@Pythonesque

Pensions .... not sure I should go there. Suffice to say I've read some scary things about how hard it is to find an accountant who actually understands the NHS pension schemes and the govt rules sufficiently to advise registrars and consultants accurately!

Not surprising, accountants don't usually "do" pension advice at all, as it's a completely different profession/regulatory body to accountancy, and the vast majority of accountants aren't authorised nor insurance to give pension advice. You'd need an independent financial advisor (different qualification/regulator), and even then, not all IFA's are authorised/regulated to give pensions advice as it's a branch of work within the IFA "wrapper". But having said all that, occupational pension schemes are very niche anyway, so even IFAs who are authorised to do pension advice work may well not know enough about any specific pension scheme to be confident to advise on it. There's a limit to what any person can study, research and advise upon. To compare it to the NHS, most nurses/doctors specialise in a pretty narrow sphere of medicine, so complaining an IFA can't advise on a specific pension scheme is like whingeing about an oncologist not treating someone with a broken leg. Carrying on that way of thinking, a general/generic IFA (or even an accountant) will know a bit about everything, like a medical GP, but would need to refer/pass on for anything too specific they're not trained/confident to do themselves.

@Phineyj

Last time I sat in a year 7 maths lesson the text book had many of those practical applications of numeracy. My daughter's primary homework has also featured practical budgeting and money questions.

It is there in school but I'm not sure how "real" it all is to under 16s.

I think it's taught too superficially and far too early, i.e. as you say, year 7, so 11 year olds. There needs to be "something" each year, to keep it relevant as teens get older and start getting part time jobs, saving to buy special things for themselves, start thinking about buying/financing cars, etc.

Are there any "real life" style of financial questions in exam papers at GCSE or A level?

@Porfre

The problem is I know when I was that ag4, any of the Lessons that weren't proper GCSE'S, were a doss session. In one ear and out the other. Just an excuse to mess around.

Yes, that was my experience and that of my DS whose just gone through secondary school. Always seems the same, not just GCSE level, but at earlier stages too. Neither the teachers nor pupils take a subject seriously if there's no exam at the end of the year, which usually means no homework, no tests, etc., so no "incentive" for pupils to put any effort in, and no mechanism for evaluating teacher performance as there's no metric to compare one teacher against another, latest year group against prior year group, etc etc.

I think in the UK everything is done for us- our student loan is taken out of our salary automatically, as are our taxes and NI. Our vat is included in the price of goods in shops and restaurants. So we just don't have to work out things for ourselves.

I've known people spiral into debt, have a mini crisis, cry for help, then apply for a debt relief order or similar, it's wiped off and they haven't really learned any lessons about budgeting or interest rates etc.

@BertieBotts I think it’s a little naive to assume that care home staff earn £30k, people in the caring profession are paid pretty poorly considering the nature of the work

But to your point I’m not sure it’s a social class thing, but it’s definitely a money thing which is tied into class. If you don’t have excess money you cant save you can’t invest for the future, you can’t afford protection, and you probably aren’t putting into your pension because all those things are basically a luxury if you need every penny of your salary in order to survive

[quote Kazzyhoward]@Pythonesque

Pensions .... not sure I should go there. Suffice to say I've read some scary things about how hard it is to find an accountant who actually understands the NHS pension schemes and the govt rules sufficiently to advise registrars and consultants accurately!

Not surprising, accountants don't usually "do" pension advice at all, as it's a completely different profession/regulatory body to accountancy, and the vast majority of accountants aren't authorised nor insurance to give pension advice. You'd need an independent financial advisor (different qualification/regulator), and even then, not all IFA's are authorised/regulated to give pensions advice as it's a branch of work within the IFA "wrapper". But having said all that, occupational pension schemes are very niche anyway, so even IFAs who are authorised to do pension advice work may well not know enough about any specific pension scheme to be confident to advise on it. There's a limit to what any person can study, research and advise upon. To compare it to the NHS, most nurses/doctors specialise in a pretty narrow sphere of medicine, so complaining an IFA can't advise on a specific pension scheme is like whingeing about an oncologist not treating someone with a broken leg. Carrying on that way of thinking, a general/generic IFA (or even an accountant) will know a bit about everything, like a medical GP, but would need to refer/pass on for anything too specific they're not trained/confident to do themselves.[/quote]
Not true @Kazzyhoward all financial advisers are qualified to give pension advice, sure there are additional qualifications that can take you to chartered status but to be a financial adviser especially if you’re qualified through the chartered insurance institute you will have taken ro4 which is pensions (ro1 ethics, 2 investments, 3 tax, 4 pensions, 5 protection, 6 case study). If the customer is looking at a complex pension investment they might bring someone more specialised in retirement planning but a general financial adviser is qualified in pensions. It depends if the company they work for does pensions if they are authorised as an FA then they can give pension advise

Also they don’t necessarily need to be an independent financial adviser, there are financial advisers in banks etc.