A major new study has confirmed what many of us already suspected – that our basic financial skills are in tatters.
One in three adults in England and Northern Ireland (NI) can’t work out the correct change from a shopping trip and four in 10 are unable to apply a simple discount on products they’d consider buying.
When it came to interpreting a graph containing basic financial information, more than half of adults in England and NI failed.
The research, carried out by academics at University College London (UCL) and the University of Cambridge, shows the two countries rank among the worst in the world for financial literacy, outperforming only Turkey, Israel, Russia and the Czech Republic, though the study did not examine the performances of adults in Wales or Scotland.
Professor John Jerrim from the UCL Institute of Education, co-author of the research paper that brought the figures to light, said: “This new research highlights how England is facing a crisis in terms of adults’ financial literacy skills. We all need to be able to conduct basic financial calculations in order to make rational well-informed decisions.
“This includes how much we should save into our pensions, understanding the financial implications of borrowing money from payday loan sites, through to whether we can really afford to buy a particular house.
“Our results bring into question how many adults in England really have the skills to make such complex financial decisions. The reality is that many adults struggle to complete even quite basic financial tasks.”
While financial education is now compulsory in schools in a bid to support tomorrow’s adults (if not today’s) in complex financial decision-making, most people believe our changing relationship with everyday money is also having an effect.
Research from The Share Centre shows that while 98 per cent of investors felt they left school with insufficient financial knowledge, more than 80 per cent believe our cashless society of contactless cards and card transactions, online banking and smart phone payments have impacted the way children understand money.
The study highlights demand for more practical, real world experience of financial education, and recommends making it a separate lesson within the national curriculum complete with relevant teaching courses.
“Financial behaviours are set by the age of seven according to the Money Advice Service, so encouraging children to start taking responsibility for their own pocket money and getting them into that saving habit early will really pay off in later life,” adds Paul Osborn, chief executive of Foresters Friendly Society.
“Children love getting regular pocket money and being given the freedom to spend it as they wish. But over time the message “once it’s gone, it’s gone” will gradually sink in, particularly when they set their hearts on bigger items which they need to save up for.
“Encouraging children to put aside as little as 10 per cent of their money in a piggy bank, or opening a dedicated savings account, is a great way to help them understand the value of saving by giving them a chance to watch their money grow. By also involving them in your planning for their own future, whether it be savings bonds or a Junior ISA, they can see you leading by example.”
Meanwhile, for those adults who have already left the education system, experts warn the legacy of poor skills and knowledge can be devastating at every stage in life.
Millennials in England and NI performed particularly badly compared with their international peers. For them, the need to understand the true cost of retirement and make adequate provision while they still have time to make a difference is especially important, Peter Bradshaw, Director of Selectapension, urges.
“There remains a common misconception that the state pension, currently paying a maximum of just over £122 a week, will be sufficient. But this is highly unlikely to be the case, assuming it still exists in 50 years’ time.”
“In reality, as the cost of basic living expenses continue to increase and people are living for longer, there is a great risk millennials will hit retirement without any financial safeguard and face a limited lifestyle in later life.”
“Although retirement planning may not currently be at the forefront of young peoples’ minds, they should know what a pension is and that it is important to start making regular contributions early on which could produce a larger ‘nest egg’ at retirement. This ideal should be incorporated in the financial education provided for all students.
“The younger generation use technology habitually. It is the main way in which they engage with brands, campaigns and socially. Free online tools, like Pension Monster, can help start the planning journey and show it’s not that difficult.”
Breaking the mould: 3 steps to making sure the kids are alright
Teach your children about their financial future
Young or old, it’s certainly true that “Money Matters Matter”. According to the Money Advice Service, financial behaviours are set from seven years old, so making time to teach children about money can have a very positive impact.
For younger children, rewarding chores with pocket money can help them to understand the benefits of earning their own money. For older children, setting monthly allowances can help them budget for the things they want the most. The digitisation of money also means that there are a wealth of online tools and apps available to make this process even more accessible and digestible.
Encourage and involve them in early saving
Even if it’s just 10 per cent of their money going into a piggy bank or dedicated savings account each month, this gives children a chance to watch their money grow over time. Reiterating the importance of saving for the things they want most, whether that’s saving for a new bike or spending money for an upcoming holiday, helping them save for these will leave them feeling more encouraged to resist dipping into their money jars too often.
It’s also great to let them know what steps you’re taking to save for their future. By being transparent about what you’re putting aside and how it’s accumulating, they can understand the impact that long-term saving can have.
Take advantage of useful savings vehicles
There is a wide range of savings vehicles available, specifically designed to help improve people’s finances depending on their personal savings goals. That being said, for children, accounts like the Child Tax Exempt Savings Plan is ideal for putting money aside to support saving for their future, whether that’s for university tuition, their wedding, or a deposit on their first home.
Source: Foresters Friendly Society
Source: Independent Money News