Nearly 24 million UK adults have poor financial literacy

Nearly 24 million UK adults have poor financial literacy

Some 23.3mn UK adults have poor financial literacy making them £20,000 worse off compared to those with good financial literacy.

The data comes from Abrdn’s first release of its ‘Savings Ladder index’ which gauges financial literacy levels in the UK.

Abrdn asked respondents the Global Financial Literacy Excellence Centre’s ‘Big 3’ financial literacy questions and found that 20 per cent could not correctly answer any of the questions asked of them, while a quarter could only answer one.

According to Abrdn, those with poor financial literacy are less likely to have pensions and hold less in them when they do.

However there were also several related factors, including low pay and socio-economic backgrounds, contributing to this.

The data revealed 33 per cent of people with poor financial literacy hold workplace DC pensions or private pensions/Sipps compared to 51 per cent of people with good financial literacy.

There is also a £20,000 gap in pension holdings between those with poor and good financial literacy, according to the index.

Just 20 per cent of people said they had a good (advanced or expert) understanding of savings products and even fewer (12 per cent) had a good understanding of investments.

As a result of the data, Abrdn has called on the government to extend mandatory financial education to primary schools and sixth forms, integrate finance into relatable subjects and discuss a new GCSE qualification focusing on financial skills.

Property ladder

The Abrdn research also found that UK wealth is strongly skewed towards property over pensions.

It showed that a home owned by the average person is worth 6.7 times more than the value of the person’s pension, excluding those with DB pensions.

Even those with incomes of £60,000 or higher have only saved 27 per cent of their property value into their pensions.

Additionally, 44 per cent of respondents thought property was the best long-term investment for their savings, despite the benefits from pensions and investments of tax efficiency and compound interest.

Less than one-fifth of people chose pensions and more than a quarter didn’t know.

Sarah Moody, chief corporate affairs and sustainability officer said the same momentum needed to be generated around saving and investing as with property, if we were to avoid a “looming retirement crisis”.

“Any future government should be urgently considering policy interventions, including the doubling of minimum pension contributions and scrapping stamp duty on UK shares and investment trusts, to kickstart the change in habits that the country will need in the years ahead.

“Better financial education is also vital if we are to encourage a culture of investing for the long-term, with our research suggesting that poor financial literacy is hampering people’s long-term financial health,” she added.

The majority of UK adults have a “low risk tolerance” when it comes to investing, according to the data, holding their savings mostly in cash or bonds.

Risk aversion was high across age groups with 40 per cent of 18–34-year-olds defining themselves as having a low appetite for risk, as did 53 per cent of those aged 35-54 and 66 per cent of the over-55s.

Those with the lowest financial literacy levels were around double as likely to have a low risk tolerance than those with the highest.

Similarly, those with the highest financial literacy were double as likely to have a high risk tolerance.

Source: ftadviser