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You are at:Home»Finance»More than 25% of all Brits lack sufficient skills and knowledge to make sound financial decisions
Finance

More than 25% of all Brits lack sufficient skills and knowledge to make sound financial decisions

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Posted By sme-admin on August 4, 2023 Finance, News

Low financial literacy could be costing the average household in the UK around £2,850 every year according to a new study by Allianz. Over a 10 year period, this could amount to £40,647 compared to households led by people who really understand financial basics. The study surveyed more than 1,000 people in the UK alongside six other countries, asking them a series of questions designed to test their understanding of financial basics, such as interest rates, inflation, and investment risks and returns.

Worryingly, the results reveal that more than a quarter or 26% of Brits lack the knowledge and skills to make sound financial decisions – what Allianz classes as ‘low financial literacy’. Meanwhile 58% are averagely financial literate and only 16% demonstrate high financial literacy. This is roughly in line with the majority of other countries surveyed. Interestingly, two-thirds (66%) of all people polled worry that they know less than the average investor about financial markets and investing.

But what kind of money could a broader financial knowledge actually add to British households’ budget? Based on the amount of financial assets owned by the average household, Allianz calculates that the difference in income from any kind of investment can quite dramatically differ between people with low, average and high financial literacy. A person with high financial literacy can expect to earn an extra £3,274 per year, which is more than 4 months of the average mortgage payment in the UK right now1. Over the course of 30 years, this adds up to £233,720.

“Low financial literacy really hurts,” says Ludovic Subran, chief economist at Allianz. “In fact, over long investment periods, like when saving for retirement, it can literally cost you a fortune. But the good news is that making smart financial decisions is not rocket science. By acquiring basic knowledge and skills, people can move from low to average financial literacy and put a lot more money in their pockets.”

 A Huge Gap in Confidence – especially among women

Given the challenging economic climate, the study also asked participants for their views on their financial future. While more than seven out of ten Brits rate the economic outlook for the UK as either fairly bad to very bad, a slightly lower proportion (44%) of people with average financial literacy say the same about their own individual economic prospects. Just about 8% feel very confident about their financial situation – independently over their financial skills level.

This lack of confidence is especially notable among British women, with 74% not confident about their financial situation. More women were also found to exhibit low financial literacy than men (35% of women versus 17% of men) while, interestingly, women were more likely to answer ‘don’t know’ to one or more of the financial literacy quiz questions. This also suggests low faith in their financial knowledge and decision-making.

It is a similar story for the generational divide too. The study shows financial knowledge and skills increase with age, with a higher concentration of highly financially literate people among Baby Boomers (21%) than Gen Z (6%) and Millennials (11%) put together.

“Typically, financial literacy programmes concentrate on boosting numeracy skills, but financial literacy is more than mathematics,” says Patricia Pelayo Romero, Senior Economist at Allianz and co-author of the study. “Any successful financial literacy intervention, particularly those catering to women and young people, should start with confidence building.”

A level playing field for everyone

To help fill the financial literacy gap and create a level playing field for everyone, Allianz has launched an online Financial Literacy hub. There, people can find easy-to-understand information and explainers, use interactive budgeting tools and register for free coaching from Allianz experts. For more information, see: Financial Literacy hub

In addition, Allianz recently launched The Squared Ball, a campaign to shine a light on the challenges faced by female footballers and help talented young players achieve their goals with confidence and financial know-how. For more information, see: https://www.allianz.com/squared-ball

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