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?

The trouble with learning this stuff in school is that, like many other things we learn at school, it isn't meaningful until you actually have money or bills to manage. As parents we need to talk about money with our teenagers and young adults. Money is such a taboo subject in some families. When I left home my mum sat down with me and showed me how to do a monthly budget. When I ran up a massive phone bill by accident I went to her for advice. Fast forward and now I have one ds who has graduated and totally financially independent and another at university. I hope i have taught them well and I hope they will always feel able to ask for help and advice on money.

@Bluffysummers

I said "authorised" to give pensions advice. I know that all IFAs will have studied the exams etc. But not all will have the necessary insurance/authorisations to actually provide that service. One of my clients is an IFA who can't give pensions advice, despite him having passed the pension related exams. He could if he wanted to, but doesn't want to, so doesn't have the PI insurance cover, and ergo, can't give pension advice. The reason being that the price of PI insurance to cover pensions advice was far too high in comparison with the income generated from such advice, so he just stopped that service.

[quote Kazzyhoward]@Bluffysummers

I said "authorised" to give pensions advice. I know that all IFAs will have studied the exams etc. But not all will have the necessary insurance/authorisations to actually provide that service. One of my clients is an IFA who can't give pensions advice, despite him having passed the pension related exams. He could if he wanted to, but doesn't want to, so doesn't have the PI insurance cover, and ergo, can't give pension advice. The reason being that the price of PI insurance to cover pensions advice was far too high in comparison with the income generated from such advice, so he just stopped that service.[/quote]
Ok authorised he will be as he is authorised by the fca and will appear on their list of qualified professionals whether he has the franchise for it is another thing and from the sounds of it he doesn’t. But that’s not a qualification thing that’s a business decision.

I’m qualified as an FA I just wouldn’t want people reading this to think that a bog standard fa couldn’t help with retirement planning because they aren’t qualified to do so

I don't know the ins and outs of when you need an accountant or some other adviser; but the NHS pension issues I referenced relate to the taxation impact that a pay increment can have due to the calculation of the increase in the notional "pot" in a defined benefit pension, and the impact of annual allowance limits.

Nothing worse than getting a pay increase and then a possible tax bill 3 times the extra, which I have heard of. The calculations required to predict these go back over several years ... and it sounds like people typically get five different answers from 4 people.

Meant to say, there are "specialist medical accountants" who are the ones you would hope would try to understand what is going on here. But the problem is actually inherent in the application of the legislation to defined benefit schemes I think.

@Kazzyhoward there is an A/S level qualification (or at least there used to be) from the Institute of Financial Studies that is exactly as you describe. I taught at a school where it was a compulsory option for all year 12s. Sadly as the school moved to IB in place of A-levels, they dropped it as there was too much to do.

Students could be offered a course like that in place of EPQ.

Not read full thread but fully agree. I had no financial knowledge, finances were not discussed 'in front of the children' and then living on the breadline for years pensions were not something to think about when the electric key kept running out! It came in, paid bills that was it.

I rent from council, no mortgage knowledge required. Was in debt for years but since the DC were mid teens have paid it off or it was written off. Now debt free.
I realised though too late, that being wrapped up in my financial worries, my DC didn't know it either. They knew there wasnt money, we didn't hide it but of course how do you teach something you dont know. There wasnt the internet to refer to then either.
DH only has state pension and when I get there my work one will be pennies and will only have state.

@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?

Have a basic or link to basic understand of different aspects and teach ourselfs then we can put charts up on the fridge to teach the other family members

In a private care home specialising in dementia I would expect the staff to be on about 30k or more TBH. Agree there are a lot where it would be minimum wage bank staff, which is an issue.

And yes of course you're right it can't be a class issue, as many people have mentioned more well off people being poor at managing money as well. But I do think how comfortable you are at dealing with money can make a difference too.

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.

Interestingly I was startled to realise this wasn't the case everywhere! But I absolutely got caught out with my first (UK) overdraft and paid so many fees on it.

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.

Agree with this - I have always tended to just ignore it as not relevant to me because it comes off your wage before you see it, and you don't really have any control or choice about it - it's only since living somewhere that it's beneficial to do a tax return (Germany) and there are several options you can choose yourself (transfer tax-free allowance to spouse, transfer children from one parent to other for tax purposes, claim purchases back on tax etc) that I've been curious about what we are taxed and what it all means etc. I'd never have bothered about that in the UK because it wouldn't make any difference. It's easy but it doesn't encourage understanding of taxation.

I wonder if money being taboo makes it an emotional/self-worth issue and that's why it's so hard for people to look at it? I know I had to undo a whole lot of emotional thinking about money before I could really just see it as a resource and treat it as one.

In a private care home specialising in dementia I would expect the staff to be on about 30k or more TBH. Agree there are a lot where it would be minimum wage bank staff, which is an issue

A friend of mine is bank staff in a dementia care home. She gets paid the same hourly rate as the permanent staff - £9.75ph. That's 20p an hour above most of the homes in her area.

One of the things that has always puzzled me is that when people get pay rises, many assume that, say, a £20pw rise will mean they get £20pw more net. They completely forget that they will lose 20% of that in tax and 12% in NI, plus whatever percentage they pay into their pension.

I still think there is a sizeable minority who don't understand how loans work and that it's not 'free money'. It is ridiculous it's not taught in schools - I grew up with people with money sense around me and just picked it up somehow, fortunately.

If lack of financial literacy is a problem particularly to the UK, I wonder whether it is a by product of how poorly maths is taught in school/acceptance even celebration of low achievement in maths as well as the fact it is generally culturally taboo to talk about money or making money.

If you are scared of numbers and not able to talk about finances freely, is it any wonder nobody can get their head around financial planning?

My dh is British. I am not. I do all the household finances, decide what investments for him and I and our dcs, get my head around pensions and insurance, tell him what we can afford or not and do the financial planning. If I left it to him, nothing will get done. Go figure.

Nobody taught me. I just research, read the information, crunch out a few numbers on the calculator and go with my best guess. We seem to be doing alright.

@cherryonthecakes not everyone is academic so why is it embarrassing , its more embarrassing that you look down on people
And no schools don't teach it as much as they should and are rushing on to the next thing , or how it applies in the real world
You may be good with numbers but another person can build a car which you can't do

You also realise people do sometimes understand apr and interest etc but have high cost credit cards as thats all they can get
If you have a lower credit score you get the higher apr often trapping people

Perhaps we’re concentrating too much on the being good at maths aspect. You can be great at maths but still not be financially intelligent/ healthy. Conversely, you can be poorly educated maths wise but financially savvy.

What I really wanted to try to teach my students is how to look after your money and budget successfully. We costed a luxury item using savings, credit cards, overdraft (authorised and unauthorised), pay day loans etc. The eureka moment was when a student said, actually Miss, if you can’t afford it, maybe it’s better to go without. Some people just spend what’s in front of them and suffer the consequences later, and some of those people hold maths qualifications.

What’s impressive about being able to calculate reverse percentages if you blow your wages on payday and can’t pay your bills? Some people are not financially responsible for whatever reason, so maybe we could teach children this, and the terrible consequences of not taking care of the money you do have.

Not the point of the thread @BertieBotts but my friend was a HCA in a private care home with a lot of dementia patients and she was unbelievably underpaid, she wanted to get into the nhs because they paid substantially more

@Hyenaormeercat direct your children regardless of their age to the MoneySavingExpert site.

Obviously it would help if you yourself use it randomly to say to work out how to do a budget, get cheaper broadband or whatever, then just bring it up in conversation that you used the site to learn about whatever and it saved you money.

I did that with some of my then teenage nephews and nieces when I realised their parents weren't financially educating them. Now some of them are better than me in explaining in detail the pro and cons of various financial products and the financial decisions they make.

We will find out in the following months how good the UK population are at juggling budgets, available funds

IMHO it is not going to be pretty 😔

I've never had problems with budgeting or financial literacy despite being on a low income for much of my life (including periods when I was just on benefits). I learned a lot from MSE and was able to maximise my income and reduce outgoings following simple advice online. I never had trouble paying bills, paying for basics and moderate luxuries - I have been in a position where I have had more disposable income while on benefits than someone on a wage paying higher rate tax. I don't remember learning anything about that from school or directly from my parents (although they were also poor but shrewd with money and I learned from their examples). It all just seemed like common sense to me. But my DSis and DBro are both terrible spendthrifts so I don't think it's necessarily about what I've learned from my parents.

It took me a lot longer to learn about investments and things like pension planning, but that's because it was less relevant to me (being unwaged and only allowed limited savings on benefits). But since I've come off benefits I've learned about those through personal finance books and websites like Monevator and have been able to catch up pretty well due to careful research and being comfortable with risk. But that is more about my psychological attitude to investments and I think that's more about not having an anxious mindset.

@slategreen I agree, it is often those people who do have a limited income that seem to be able to manage what little they have better. Not investments and pensions perhaps, as those on low incomes may never be able to do these things, but general day to day budgeting.

I agree @slategreen I grew up in a family without spare money, without many treats. I’m good with money now. My sister isn’t…

You really don’t need to be the sharpest tool to know that your outgoings have to be less than your incomings. My sister knows that. She could do any amount of budgeting classes at school or as an adult - she still knows that. And despite a low income (full time NMW + in work UC) she actually does have enough incoming - due to low cost housing.

But she still over spends. Buys crap - takeaways, clothes she doesn’t need - when the money is in her account, then 2 days later it’s not there for the predictable rent.

Her husband had to take her salary into his account, and transfer her pocket money. It wasn’t done through financial abuse.

But her overspending has NOTHING to do with not being able to add up, or understand income vs expenditure or that loans have interest on them.

What drives her is - probably - whatever drives her binge eating disorder.

So you can teach budgeting in school all you like, won’t make a difference to her.

@RedWingBoots Thank you!

Agree @Cocomarine
Bad money management seems to be a personality trait for many rather than lack of maths ability or whatever.
I think school could help those who simply haven’t a clue, but no, won’t change that type of personality I guess.

I live in another (OECD) country and I don't see any evidence that it's better here. The advantages you mention of credit cards wouldn't mean anything here because we don't have a credit score system.
Banks here are a bit harder to borrow from and don't push overdrafts/credit as much.

"Even finding out what type of scheme they're in can sometimes be hard"

Yes. I have at least 3 with the same company. I wanted to merge them, but couldn't answer the questions on the website so I'm stuck with a few tiny pensions. I have no idea how to claim them when I'm 65 or whatever the age is.