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 amount of people that have no protection polices in place is astounding."

I don't even know what a protection policy is.

"our student loan is taken out of our salary automatically"

Depends on your age.

I think it's a combination of factors.
Borrowing is very relaxed in the UK and sometimes 'pushed' on customers.

Being in debt is a way of life (this includes cars and mortgages).

People simply don't understand what borrowing means in terms of interest.

Basic math is actually poor in the UK.

There isn't a real sense of understanding and being really afraid of becoming poor so the concept of savings doesn't quite take of in the real sense.

These are my personal observations and I didn't grow up in the UK.
All my basic financial knowledge probably came from my grandmother who was incredibly good with money. The rest I learned along the way as I had to navigate the grown up world with the associated mistakes along the way.

Randomly Saving 50p on a reduced bag of apples at the supermarket is not the same as putting aside 50p on a regular basis. That's probably the only lesson they need to teach in school. And expand on it: grow your own apples, you don't need that many apples, or do you etc

@Gwenhwyfar

"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.

“Or whatever the age is” I’m really interested in this. Why haven’t you found out? This is surely personality based, and nothing to do with whether a school teaches “personal finance awareness”?

@Pythonesque

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.

Yep, this. The NHS pensions agency won’t tell you as they can’t give “advice”. Your accountant won’t tell you, because very few accountants specialise in the NHS pensions scheme.

When I moved from being a full time registrar to a part time consultant, my pay went down but I got hit with a £36k tax bill (thankfully due to Covid my employer paid it or I would have had to remortgage my house). I have a PhD in a maths-adjacent subject (epidemiology), and NHS pensions are really not intuitive at all.

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.

I'm not sure if that is a lack of financial literacy, more falling for the continuous marketing that surrounds us all, encouraging people to buy things they don't need in return for an endorphin hit.

I agree with many PPs who state that a lack of basic mathematical skills is almost a badge of honour, and sadly more common in women (in my experience).

I agree it should be taught in schools and is more useful than many things taught in schools.

Someone saying the information is out there if you want it - I think this needs to be something you know before you need it. If you're down to the bones of your arse you're not best placed to make a decision on whether you should take out a credit card or loan and how that all works. Had you been taught money management etc then maybe you wouldn't have got there in the first place or would be better placed to deal with it when you are.

Thinking about it it is strange that one day we are just adults who live separate from our parents are expected just to know how to deal with bills and how much things cost etc. I agree it comes from the taboo of not discussing money. Maybe we as parents should be more open with our children 'I earn X and by the time I pay Y and Z this is how much we have left over' it might help with their expectations of us too.

Does anyone have any suggestions on how we should be educating our children on how to be responsible financially in the future? I don't think it necessarily comes down to being taught to save. You can use credit to your advantage as the OP mentions do I don't think we should be scared of credit but it's about being responsible.

"“Or whatever the age is”
I’m really interested in this. Why haven’t you found out? This is surely personality based, and nothing to do with whether a school teaches “personal finance awareness”?"

Why haven't I found out my retirement age you mean? Because it changes all the time. It's 68 at the moment I think for someone my age, but that could change again by the time I reach that age couldn't it. I also live in a different country to where these pensions are so while I realise I will get these pensions at the UK age, my retirement age will depend on where I'm living at the time.

@Pythonesque

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.

There is no problem with the legislation around annual and lifetime pension savings limits. Those limits were introduced to prevent wealthier people benefiting disproportionately from pensions tax relief at the expense of lower-paid people. That was the right thing to do (and I speak as somebody affected by those limits).

The application of the legislation to DB schemes isn’t a problem either. Except for members of those schemes who are outraged at having to pay tax like everyone else. Your expected annual pension income is multiplied by 20 because that’s the number of years that retirees are expected to live for, on average, post-retirement. That is compared to the lifetime limit of just over £1m. If you’re pushing up against that limit you’re on for £50k per year in NHS pension payments, which isn’t too bad, is it?

That’s a reasonable way of valuing the DB pension pot. If that pension pot (taxpayer funded if you work in the NHS) is liable to exceed £1m, then you don’t need extra tax concessions any more than anybody else in the fortunate position of amassing that much in retirement savings. You just need to suck it up and count your blessings, and you can afford to pay for your own tax advice too.

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 agree with this. Unless a person has genuine learning difficulties then pensions are something we all need to get to grips with, like grown ups. I hear fewer “oh I could fall under a bus tomorrow, I’m here for a good time not a long time” remarks than I used to but the deliberate ignorance still surprises me.

Although I read posts on here in mortgage threads where people are rejoicing at having been permitted to borrow a ton of money over 35 years to ‘get on the ladder’ or ‘move up the ladder’. A mortgage they will pay until they are 70 and that will suck up all their discretionary income that could have gone into a pension. But never mind that. Open the Prosecco.

Or threads where somebody says, “we passed the lender’s stress test last week based on me working full time but now I’m going to go down to two days per week, the mortgage hasn’t been finalised yet, shall I tell the lender?”. Duh! What do you think? However, the post will be met with a chorus of, “no, don’t tell them, you need your dream home!”. As if financial regulation were just professional spoilsporting that you can ignore if you feel like it.

@Cocomarine the government is doing their review of the state pension age which has to be published in May 2023. There are indications they will put it up to 68 for those born after 1969-1971. There has been some previous mutterings on this but no legislation has been put through parliament, instead they have just warned people born in the 1970s using the press that this is going to happen.

So this is why someone like GwenhwyfarI is saying she doesn't know where her UK state pension age is 67, 68 or even older.

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.

This ties in with the "wealth on Instagram" thread but there are people who think YOLO and would spend £300 on finance on a new car over putting it in a pension or paying more than the minimum off their credit card.

I suspect that there's people who don't know that their fuel bill is going to go through the roof. I owe Martin Lewis for altering me to look at deals closely last year. (How is he not a Sir or Lord for keeping the country's households ticking and educating the nation?)

@Hotelhelp things taught in school as one or two lessons don't stick. So it up to parents, whose actual responsibility it is, and older family members to teach kids life financial skills.

It starts with basic things like sending a secondary age kid to the shop with money for one item then progressing to a top up shopping list.

Showing them how to read utility meters. (Then showing them how you find out how to read the meter if it is one that you haven't come across before.) Showing them that you can calculate the bill as the formula is on the bill, and explaining that in the summer the gas (or electric) bill is less as you don't use heating.

Using resources like the moneysavingexpert site courses.

Getting children to understand financial needs versus wants. So instead of saying "I can't afford it" or "I will just pay for it" you explain why you are buying it for them.

Also if you have teenagers 15+ you can get them selling old stuff on ebay or where ever, then allowing them to keep the money. Some kids will only do it once while others will do it more often.

[quote RedWingBoots]@Cocomarine the government is doing their review of the state pension age which has to be published in May 2023. There are indications they will put it up to 68 for those born after 1969-1971. There has been some previous mutterings on this but no legislation has been put through parliament, instead they have just warned people born in the 1970s using the press that this is going to happen.

So this is why someone like GwenhwyfarI is saying she doesn't know where her UK state pension age is 67, 68 or even older.[/quote]
Yes, but in the nicest possible way it’s everybody’s personal responsibility to check what their pension age is now. Everybody knows that the government can change the state pension age, and has done so before.

We all need to keep up to date with our own state pension age, and the likelihood of the date on which we become eligible moving. I was born in 1971. My retirement age currently is 67. I’ve followed the news stories and have no doubt that it will rise to 68. It’s my job to stay aware and plan accordingly.

In any event, the age at which you can draw on an occupational pension might not be linked to state pension age. It might be sooner. So all the more reason to inform yourself about when you can draw on your occupational pensions.

@Gwenhwyfar

"“Or whatever the age is” I’m really interested in this. Why haven’t you found out? This is surely personality based, and nothing to do with whether a school teaches “personal finance awareness”?"

Why haven't I found out my retirement age you mean? Because it changes all the time. It's 68 at the moment I think for someone my age, but that could change again by the time I reach that age couldn't it. I also live in a different country to where these pensions are so while I realise I will get these pensions at the UK age, my retirement age will depend on where I'm living at the time.

You said “65 or whatever”, which is already younger than state retirement age for anyone not already retired - we’re into the 66s now. So it wasn’t clear to me that you were basing that comment on the U.K. state retirement age, or it’s potential to be changed.

Why do you think you can’t take your 3 overseas pensions until you reach U.K. state retirement age? (be that 68 or whenever)

Individual schemes can set their own age - as long as it’s compliant with U.K. legislation, which means you must to 55 currently, moving to 57 from 2028 (legislation not finalised but government intention declared) which is then planned to change to state age less 10 years. So 58 for you.

I currently have a state age of 67, and can take:

• private at 57
• portion of work pension that’s quite old at 60
• all the rest of same work pension at 65, regardless of future government changes to state age
• all of that work pension any time after 57 if trustees accept my request and I’m prepared to lose a huge chunk of it for early payment start

The important age for your overseas pensions (if you don’t transfer them) isn’t your U.K. state legislated pension age - but the country in which they’re held. Note you may have to pay tax on the income in the U.K., unless it’s a country with a no double tax agreement.

If I were you, I would be aware of the state retirement age in the relevant countries - and if there was similar legislation as in U.K. regarding early access.

I’ll be using my private and work pensions from approx 60, so I can retire earlier and bridge the gap before getting state pension at 67!

[quote RedWingBoots]@Cocomarine the government is doing their review of the state pension age which has to be published in May 2023. There are indications they will put it up to 68 for those born after 1969-1971. There has been some previous mutterings on this but no legislation has been put through parliament, instead they have just warned people born in the 1970s using the press that this is going to happen.

So this is why someone like GwenhwyfarI is saying she doesn't know where her UK state pension age is 67, 68 or even older.[/quote]
But this might be totally irrelevant to @Gwenhwyfar because some of her pensions are held overseas! And even U.K. schemes can have dates that are different to U.K. SPA.

Each to their own, but this was my question - is this personality? I can’t imagine not knowing the scheme dates for my pensions. I don’t see that teaching financial awareness at school for a few lessons is going to change the personality of someone who isn’t concerned to know this stuff.

Maybe it would, maybe the early lessons would spark interest? Like I said, I can’t imagine having a pension and not knowing it’s current scheme details.

I'm intelligent. I'm good at maths but I don't understand how pensions work or what's the best investment for my money.

I don't think that's unusual.

@Halllyup17

I'm intelligent. I'm good at maths but I don't understand how pensions work or what's the best investment for my money.

I don't think that's unusual.

I totally understand not knowing the best investment… as investments aren’t guaranteed (and even if you find one that it, you’re comparing it with others that aren’t!) there isn’t a black and white answer.

But for someone who is good at maths and intelligent, I’m interested in why you don’t understand how pensions work. Not the finest detail of every last piece of legislation. But the basics that are relevant to your pension. What’s the barrier to you researching and understand those?

It’s only by understanding the barriers I think, that you can have a go at working out what could be taught in schools to help.

@Iamthewombat and there you prove that the average “financially literate” person doesn’t understand the intricacies of the NHS pension scheme.

There is a specific problem with the way final salary is calculated in the jump between registrars and consultants. For registrars, only the 9-5 portion of their salary is pensionable. So generally around 60% if your pay on the old contract. Whereas as a consultant, your whole salary is pensionable, at FTE, even if you are part time.

So I went from earning £65k as a registrar, to earning £55k as a 0.6 FTE consultant, and got hit with a massive tax bill because my “predicted” pensions pot based on my potential final salary had increased in value too quickly. Whilst still being well below the £1m cap.

Obviously £55k is still a great salary, but it is hardly super-yacht territory, and no most people on that salary can’t absorb a five or six-figure tax bill without hardship.

www.telegraph.co.uk/money/consumer-affairs/got-125k-pensions-tax-bill-one-year-britains-taxed-nhs-doctor/

Much as I hate the term, it would be good to have a new subject (and GCSE qualification) called "Life Admin" or hopefully a better name for it.

To cover things like money management, shopping around for utilities, different types of insurance, understanding terms & conditions, deposits, obligations under leases, interest, pensions, mortgages, property rental, basic tax/nic, etc., etc. Not in any great detail, but just generics and overviews to give people a base-line of information.

I'm constantly amazed at pretty sensible people with decent jobs who make pretty stupid mistakes, like paying a deposit for, say, a holiday, and then being gobsmacked when they realise they can't get a refund - they're now in this consumer credit act generation where they're accustomed to being able to return stuff for refund, no questions asked, so they assume that applies to everything and get themselves caught out.

Same with people who just didn't realise they needed to insure their home (yes I know there are places where it's prohibitive, but I'm talking about "normal" places, not flood risks). Likewise those who don't get holiday insurance and find themselves in trouble abroad.

I don’t think that would help, @user1497207191
At least, not as much as you’d hope it would!

Like your person who didn’t take out holiday insurance…
Bet they knew it existed, but decided they couldn’t afford it, or didn’t want to afford it.

Would a GCSE course 10 years previously really make the difference?
What would be the content on that - a worksheet to discover how much funeral repatriation costs, or broken leg setting in US healthcare system?

I think the people who decide it won’t happen to them would still not take it out.

I’ve not personally ever come across someone who didn’t know insurance existed (you can’t even buy a kettle from Argos with them pushing it at you!) - it has always been a choice not to pay for it.

I’m not against life skills being taught in schools. But we’ve already got a crowded curriculum so I’d want to be sure it really achieved its aims.

Also, I hear a lot of, “oh they should teach this in schools”. Once, I’d have said that too. But I have a Y9 child, and in their PHSE classes (they have their own name for it) they have covered things like the basics of the legal system, and money management.

So I wouldn’t leap in with a GCSE Life Admin, but understand what is and isn’t working now, and why.

[quote Changechangychange]@Iamthewombat and there you prove that the average “financially literate” person doesn’t understand the intricacies of the NHS pension scheme.

There is a specific problem with the way final salary is calculated in the jump between registrars and consultants. For registrars, only the 9-5 portion of their salary is pensionable. So generally around 60% if your pay on the old contract. Whereas as a consultant, your whole salary is pensionable, at FTE, even if you are part time.

So I went from earning £65k as a registrar, to earning £55k as a 0.6 FTE consultant, and got hit with a massive tax bill because my “predicted” pensions pot based on my potential final salary had increased in value too quickly. Whilst still being well below the £1m cap.

Obviously £55k is still a great salary, but it is hardly super-yacht territory, and no most people on that salary can’t absorb a five or six-figure tax bill without hardship.

www.telegraph.co.uk/money/consumer-affairs/got-125k-pensions-tax-bill-one-year-britains-taxed-nhs-doctor/[/quote]
No, nobody said that the average financially literate person should understand the intricacies of the NHS pension scheme.

I said that there is nothing wrong with the legislation around pension savings limits, and I stand by that.

I also said that if you are a member of a lucrative final salary scheme, especially one that is taxpayer-funded, you can pay for your own advice rather than expecting the legislation to change to accommodate you. I stand by that, too.

@BarbaraofSeville

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.

It is true that the information is out there but it can be hard for people to go looking for things they do not know.

It is also fair to say that information offered is often not transparent.

I also wonder why this kind of thing is never mentioned in the likes of Soaps. They're always keen to highlight numerous social issues and run with story lines re spiking drinks, upskirting, drugs, depression, homelessness, etc., but never deal with day to day financial/legal issues.

Why can't there be a short story line in Corry where Leanne books a holiday and pays a deposit, and then tries to cancel it only to find not only can't she cancel, but she has to pay the balance of the deposit too? Yes, I know it's not going to be an award winning plot line spanning many episodes, but it could easily be a "fill in" story, after all there's lots of "padding" in the soaps, being day to day routine chit chat that is pretty irrelevant.

Or how about tagging on an insurance foul up to one of the numerous car crashes, house fires, etc., where the character finds outs they didn't have the right insurance as a killer blow to whatever else happened, i.e. whoever died or whatever.

Soaps are always telling us how they try to be "real life" and have to cover the "big stories" of the day, but in reality, a typical street won't have half the residents having been in prison or suffer multiple fires, tram crashes, or whatever, yet the average street will have lots of people who've been screwed over financially/legally through lack of knowledge.

I wish i had been taught financial management at school! I was up to my eyeballs in debt as soon as I could get hold of credit and have been in and out of debt ever since. Im absolutely terrible with money and still don't understand half of the things I should know now in my 40's.