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The UK’s growing financial literacy dilemma

September 14, 2018

The UK’s growing financial literacy dilemma

It’s a problem. Our brains aren’t wired to easily process financial concepts such as compound interest, unbiased investing and allocating consumption over time. Add to this the increasing number and complexity of financial products and you have a brewing crisis in financial literacy.

Dilip Soman, Professor of Behavioural Economics at University of Toronto, writes “Changes in the financial landscape over the past 20 years have taxed our cognitive capabilities to new levels.”

In 2016 the Organisation for Economic Cooperation and Development (OECD) looked at financial literacy in 30 nations. The UK placed just 15th on the list, with less than half its population setting and undertaking long-term financial goals.

Many organisations are now examining ways to address this growing crisis — beginning with education, but including, too, changes in culture and within the financial industry.

Education

Calls for personal finance to become standard school curriculum have gained increased support. But in lieu of a nation program, many volunteer organisations have risen to fulfil the need for financial education among students and young adults.

These programmes are often designed to tear down stodgy and pedantic preconceptions about finance by using games, discussions and interactive activities — often engaging both parents and children.

Among the more successful of these programmes is MyBnk, one of Octopus Giving’s current charity partners, whose primary goal is to empower young people to take charge of their future.

Changing attitudes about money

A cultural apprehensiveness about money prevents may people from speaking openly about financial matters. Having candid discussions about money around the family dinner table can better shape the way children think about and handle money.

“It’s never too early to start learning about the basics,” stated Caroline Flagg, Head of Advised Distribution at Labs. “Something as simple as saving pocket money and birthday money from an early age, encouraging children to understand the value of money. ‘Earning it,’ by helping around the house, can also teach a valuable lesson.”

Better communication within the financial industry

Financial institutions frequently fail to use plain language to convey products and services. Their communications are often a maze of jargon and incomprehensible acronyms. For their message to reach a broader audience, financial services need to speak more directly and clearly to people.

Access to information and advice

Democratising financial information increases the availability of knowledge and advice. This is a key area in which fintech plays an important role. By offering 24-hour, mobile access to financial information and creating digital tools, fintech has helped both financial experts and non-experts better manage savings and investing.

Yet despite the growing availability of digital tools, access to professional advice remains important. According to Caroline, “Good financial literacy should mean people understand their shortcomings and know they simply cannot be specialists in everything. And, therefore, they understand the value of financial advice.”