Three quarters (73 per cent) of the country fall below the financial literacy benchmark, exposing the UK as a weak performer relative to other similar economies such as France, Canada, and New Zealand.
A report from Wealthify and think tank The Centre for Economics and Business Research found that the minimum threshold for being ‘financially literate’, is a score of 6.5 out of 10 questions posed.
The average respondent answered only half (5) of the questions correctly and only one in 20 (5 per cent) gave correct answers for all 10 questions.
The research had a nationally representative panel of 2,250 interviewees and was based on and designed by analysing previous models.
Wealthify and CEBR benchmarked financial literacy against established criteria for measuring levels of financial understanding.
The results showed a strong correlation between financial understanding and behaviours, with seven in 10 (71 per cent) respondents in the top quartile for financial understanding making contributions to a pension pot, compared to only four in 10 (40 per cent) of those in the bottom quartile.
Additionally, the savings rate for respondents at the top end (13 per cent) of the benchmark scale was significantly higher than for those at the bottom (8 per cent), suggesting that greater financial understanding is linked to better financial wellness.
Sam Miley, senior economist at CEBR, said: “This research reveals considerable divergence in financial understanding amongst the UK population and between generations.
“We have also found a strong association between such understanding and the prevalence of positive financial behaviours, such as saving, contributing to a pension, and avoiding risky payment mechanisms.
“This suggests that those lacking financial literacy could be at a disadvantage when it comes to their financial health. This point is made all the more pertinent given the difficulties faced by many households amidst the ongoing cost-of-living crisis.”
Young people score the lowest
The report also exposed a gap between young people, aged 16-17 years (who averaged 2.3 correct responses) and older respondents, aged 71-80 years (who, on average, had 6.2 correct responses).
Less than half (45 per cent) of 16-17-year-olds correctly answered questions about what impact inflation has on their savings (compared to 60 per cent of the whole sample).
Also, on questions about mortgages, just 36 per cent of under 18s answered correctly (compared to 65 per cent of the whole sample).
Andy Russell, chief executive officer of Wealthify, said the report shows that 16 and 17-year-olds lack vital knowledge about day-to-day finance.
“These are essential skills, especially as many of them are about to become financially independent for the first time, in a tough economic environment," he said.
“It is a critical time in any person’s life, when they first have an opportunity to establish healthy money habits of their own and build confidence in financial decisions that can last a lifetime; something made even more challenging by the current cost of living crisis.”
The results raised concerns about the long-term outlook for financial wellness in the UK if the next generation are not better equipped with financial knowledge and skills.
National Financial Literacy scores by age group
Age group | Average number of correct responses |
Under 18 | 2.3 |
18-25 | 3.5 |
26-30 | 4.1 |
31-40 | 4.5 |
41-50 | 5.7 |
51-60 | 5.6 |
61-70 | 6.1 |
71-80 | 6.2 |
Over 80 | 5.3 |
Russell added: “The findings show a clear association between age, exposure to monetary decisions and choices over time, and levels of financial literacy.
“This suggests that earlier introduction to real-world financial decision-making could have a positive impact on young peoples’ long-term outlook.
“However, teachers have told us they lack the confidence and resources to cover these topics with young people.”
Wealthify said it is working with financial and enterprise education charity, Young Enterprise, to launch free financial education tools in schools this September.
Financial literacy by region
On a regional basis, the highest number of correct answers was reported amongst respondents in the South West, at 5.5 on average.
Meanwhile, the lowest average score was witnessed in the North East of the country, at 4.3 correct responses.
Households in the North East scored particularly poorly on the questions covering inflation and investment.
Households in the South West were strong performers on the interest rates. London households were amongst the poorest performers on price and mortgages.
Financial literacy by region (average number of questions answered correctly)
Region | Score |
South West | 5.5 |
Scotland | 5.3 |
East of England | 5.1 |
West Midlands | 5.0 |
South East | 5.0 |
Northern Ireland | 4.9 |
London | 4.8 |
North West | 4.7 |
Wales | 4.7 |
Yorkshire and Humberside | 4.6 |
East Midlands | 4.6 |
North East | 4.3 |
Sharon Davies, CEO of Young Enterprise, said: “The new benchmark from Wealthify and CEBR offers important fresh insight into the poor state of financial literacy across the UK population – particularly among young people – and how that links to financial behaviour. Young people and students rank lowest for financial literacy.
“That lack of knowledge has a hugely detrimental effect on their financial health – with real consequences for the rest of their lives.”
Davies explained that the current cost of living crisis and move towards a more cashless society only increases the need to provide young people with a solid financial education.
“Any investment to improve young people’s financial literacy not only pays huge dividends to their lives, but their families, communities, and wider society.”
sonia.rach@ft.com
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