A recent research study has found that a lack of proper financial education has left consumers across the UK a bit confused with how to manage their funds. The study reveals that UK residents may be dealing with detrimental effects on their confidence, mental well-being and their overall health.
Digital investment app provider Freetrade had prepared the Great British Financial Literacy Test— which includes 18 questions on savings, investment, ISAs and retirement that most people will have to deal with at some point in their lifetime.
Asking 2,000 UK residents to complete the financial literacy test, Freetrade found that nearly 50% of respondents (48%) were unable to answer simple questions regarding personal finance such as what an (individual savings account) ISA stands for, the difference between fixed rates and variable rates, and what annuity providers do at the time when a person gets ready for retirement.
Notably, the Freetrade study reveals that retirement was a key area of personal finance that UK consumers really struggled to understand with around or 4 in 5 or 80% of respondents saying they couldn’t correctly answer this part of the financial literacy test. This particular figure was 81% among people 55 or older (getting ready to approach retirement age).
The average pass rates for questions related to making investments were the second-lowest at 44%. This was followed by savings (34%) and ISAs (32%). The Freetrade survey further revealed that consumers weren’t too confident about aspects of personal finance. Approximately 88% of UK citizens claim they lack confidence when it comes to money, and 32% noted that this also created a negative impact on their mental wellbeing.
Around 90% of survey participants said that they’re not confident when making investments. About 90% of UK residents responding to they sruvey also said they feel like they can’t effectively manage their retirement funds. Around 88% of the UK consumers taking part in the survey noted that they’re not too confident about ISAs.
Dan Lane, Senior Analyst at Freetrade, stated:
“The greatest advantage you can give your investments is time. So it’s concerning that the cohort with the most time on their hands feels so ill-equipped. Whether we realise it or not, investing early on in life could be the difference between reaching our eventual financial goals or missing them entirely. Getting to grips with the basic concepts later in life might just be too late.”
Lane further noted:
“There should be alarm bells ringing about the fact that 90% of Brits lack confidence with their pensions. With advances in medical technology and increased life expectancies we’re likely to live longer in retirement than ever before. But a massive gap in our understanding of how to invest for our third age, or even how to access those investments suitably later on, means we really aren’t prepared for a sizable portion of our lives. Unless we’re thinking about investing for retirement long before we get there, we could end up in the awful position of regretting the simple financial decisions we made 30 years ago.”
Lane added:
“It’s a real sign of the nation’s lack of financial education when a huge portion of the population doesn’t know the name of one of the most common savings products. The frustrating thing about the lack of confidence around ISAs is just how helpful, accessible and easy to use ISAs can be. Chances are, if we’re unsure about the headline facts around ISAs, we’re not using them to help us as much as we could.”
Lane continued:
“Basic concepts like compound interest might be ticked off in the National Curriculum but setting us up to deal with that in the real world takes more than a textbook exercise. These results should be a wake-up call for the nation’s education system to equip young people well enough to put theory into practice.”