Better business: Calls to improve financial literacy

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Better business: Calls to improve financial literacy

The industry might be working hard with the regulator to make financial services accessible to more people, but there is still a knowledge gap, which is putting adults at a disadvantage when it comes to understanding about how to save or invest.

Tom McPhail, Hargeaves Lansdown head of policy, said the government needs to do more to help adults, particularly younger individuals, understand about saving and investing. 

He welcomed the different financial literacy schemes, such as the Money Advice Service (MAS)-funded KickStart scheme, but he added that not everyone will be able to benefit.

The CFA has previously said financial literacy has an obvious influence on the financial services industry, because people who know how to manage money well are better consumers of financial products and can make informed choices about saving, borrowing, and investing.

Mr McPhail said: “[The current schemes out there means that] financial literacy will improve, but it will not happen overnight and is likely to be patchy.

“One of my worries is that currently the FCA has no statutory objective to actually encourage people to save and invest, so there is a policy gap. You end up with things like MAS and KickStart but it would be good for the government to address this challenge.”

His comments come in the wake of the FCA Financial Lives Survey 2017 which found that a significant number of adults in the UK were experiencing financial difficulties.

The survey looked at the financial products consumers use, their attitudes to managing their money. It also covered their experiences of using financial products and services, as well as their experiences of dealing with the firms that provided them.

It found that single parents aged 18-34 are three times more likely to use high-cost loans: 17 per cent compared to the UK average of 6 per cent.

The regulator described 13 per cent of 25-34 year olds as being in difficulty, because they have missed paying domestic bills or meeting credit commitments in three or more of the last six months, while just 35 per cent of those aged 45-54 have given a great deal of thought as to how they will manage in retirement.

As a result of these findings, other financial firms have also been urging the government to include financial literacy education in school curricula as a way to improve the general public’s understanding about financial matters.

Jane Goodland, responsible business director of Old Mutual Wealth, said: “Steps must be taken to tackle the financial problems faced by UK adults but that will only treat the symptoms of financial difficulty and not the root cause, which can be found in our lack of financial literacy.

“[The FCA] report shows a terrifying 4.1m have failed to pay bills or credit commitments in three or more of the last six months, 3.5m are borrowing from friends and family to make ends meet and only just over a third (35 per cent) of those age 45-54 having prepared for retirement.

“Much of this comes down to poor financial literacy with 46 per cent of all UK adults saying they have limited financial knowledge, 17m adults with car insurance saying they don’t understand the meaning of ‘no claims’ and 2m UK adults say they cannot understand their annual pension statement.”

Ima Jackson-Obot is features writer at Financial Adviser