The Importance of a Financial Education
26th September 2017
Here in the UK, we are facing a number of ‘crises’; a housing crisis, a debt crisis, a low-pay crisis. But, arguably, nothing is more important than the ‘financial literacy crisis’ facing the population today.
It is even possible that this crisis is, in part, to blame for the others. Would we have quite so much debt if more people understood the difference between bad debt and good debt? If mortgages, savings and interest rates were better understood, would people be better prepared and able to afford housing? Would an individual’s pay stretch further if they had been given the foundation of good budgeting techniques before they got their first job?
A recent Creditfix Survey demonstrated that 92.27% of people in debt believe that there is not enough information and teaching available to younger people in regards to finances.
Similarly, 30.34% reported that they had not understood the charges and interest rates associated with a credit, or store, card before they took it out, 44.91% don’t know their credit score or where to find it, and 50.58% feel that charges associated with overdrafts and loans are not clearly explained.
Marketing and the internet has made financial products more accessible, and desirable than ever. 56.66% of respondents, who were already in debt, felt it was easy to obtain credit online.
This data is supported by a huge number of studies dedicated to analysing financial literacy across the world. The OECD had previously found that, across the entire globe, only one in five people are genuinely financially literate.
Their study had 15 year olds’ ability to grasp basic shopping conundrums, such as value for money, and China and Russia both beat the USA.
A more recent OECD study put the UK 15th out of 30 for financial literacy. France came first.
The study demonstrated that fundamental concepts, such as inflation, were being misunderstood. Similarly, a very shocking study from 2013 revealed that as much as 16% of UK adults could not even identify the bank balance on their bank statement.
In the same study, 12% of adults believed that the current Bank of England base rate was more than 10%. It is currently at 0.25%.
Various studies have found young people, or ‘millennials’ to be particularly financially illiterate. A PWC study report that only 24% of over 5500 millennials had basic financial knowledge.
However, young people seem very aware that they need help, as ‘financial education’ was voted the initiative that they most wanted banks to invest in, and 75% of MPs agreed.
Most interesting, and perhaps most worrying, is the research done by YouGov in 2012. Unlike the other reports, which involved actually testing people on their financial knowledge, this study simply asked people to rate their own capabilities.
As expected, young people were most aware of their lack of knowledge, and only 8% reported that they had a ‘high understanding’. But, generally, the study showed that 58% of women claim to have a ‘good understanding’, as do a whopping 72% of men.
This is particularly interesting, as the other, skills-based studies, generally showed women to be more financially literate than men.
This study indicates that many people do not realise that they are financially illiterate, and are thus not seeking the help they need.
Why do people need to be financially literate?
As touched on above, it is clear that financial literacy is becoming an inescapably important skill in modern life. On an individual level, financial products are everywhere online, and marketing is becoming more and more clever, with many products being aimed at the most vulnerable in society, such as immigrants, the elderly, or those already indebted.
Financial illiteracy is, essentially, yet another way that people who are already in debt will get into more debt, rather than receiving the IVA help they need.
On an economic scale, however, irresponsible consumer spending, inefficient budgeting and limited savings can seriously impact financial problems, such as recessions, and make them much more severe than they need to be.
The greatest problem to overcome, however, when it comes to financial illiteracy, seems to be the growing ‘advice gap’. The FCA reported in 2016 that fewer people were paying for regulated financial advice.
They concluded that this was primarily due to the high costs of the advice and a general lack of trust in financial institutions. They noted that the price of a Financial Advisor averaged at £150 an hour.
Where can I go for a Financial Education?
Luckily for the UK, the government has begun to tackle this problem. Since September 2014, financial education has become a compulsory part of the curriculum as part of citizenry classes.
But what about if it’s ‘too late’ for you, and you’ve already left school? Well, don’t worry – there is no such thing as ‘too late’. We’ve compiled a list of great resources that can help you improve your financial literacy.
Most of these free resources have been written with students in mind, but there is nothing to stop you from benefiting from them as well.
- Nationwide’s educational website is great for understanding banking. In particular, they have two great videos explaining current and savings accounts, and interest.
- Money Make Sense has some great PowerPoints on topics such as banking, wages, bills, and budgeting. Their website as a whole could be useful for anyone seeking to educate themselves on money issues. They also have a fantastic glossary to help you understand lots of personal finance terms.
- The Guardian’s financial glossary is also fantastic, but a little bigger, more comprehensive and business orientated. It may be a good idea to move on to this once you’ve mastered the Money Make Sense glossary.
- The Money Advice Service is a great resource for answering any and all questions you may have about money. Although, it can be a bit too big to tackle if you are just trying to generally educated yourself. It was set up by the government, but is soon going to be abolished and replaced with a smaller advice service.
- For general advice on almost any issue, such as health, visit Citizen’s Advice. You can even find your local branch so you can talk to someone in person.
And, of course, if you are struggling with your debts, don’t forget www.creditfix.co.uk for free debt help and advice. You can even call us on 0808 2085 198.