How can you improve your financial literacy?
By Benjamin Salisbury
A high level of financial literacy means that you have information and knowledge about financial terms and can apply that knowledge to make informed decisions about your finances. This includes wisely choosing a mortgage, savings account, credit card and retirement plan that works best for your financial situation, and being able to alter those choices as you make life changes such as getting married, starting a family or retiring.
However, according to Money Advice Service's (MAS) consultation document on its financial culpability strategy for the UK, many Brits are not financially literate. According to the document, one in six people can't read the balance on a bank statement, more than half are "making do" and the majority of over-indebted people -- 80% -- do not seek advice on how to resolve their problems.
Research from Ipsos/Mori published July 2015 shows that UK adults seriously underestimate the cost of major life events, such as raising a family, attending university or retiring.
Financial ignorance not only impacts your bank account -- it can affect your social and emotional states as well. And since individuals are increasingly making their own major financial decisions, such as planning their retirement, it's more important than ever to know where to go to learn the skills you need to make those decisions.
What leads to financial illiteracy
"There are a number of factors that contribute to someone's ability to gain a high level of financial literacy," says Jake Eliot, senior policy manager at MAS. "These include having the motivation and attitude to seek the information they need, gaining the skills and knowledge to make the best decisions about money, and ease and accessibility of information."
But unclear financial jargon and vague explanations from financial institutions can stymie even the best of educational intentions. As a result, confusion over debt, credit and interest are common, along with misunderstanding of inflation and interest rates. Furthermore, many people do not understand mortgages, pensions and financial investments.
Improving, preventing financial
The key to improving financial literacy in the long run is to educate people from a young age. As of September 2014, financially literacy is part of many schools' maths and citizenship curriculums for key stages 3 and 4, offering schools the chance to equip young people with lifelong skills to manage their finances.
According to a spokesman for the Department of Education, the curriculum includes the importance of budgeting, credit and debt management, and of understanding financial services and products.
In addition, some groups, such as Young Enterprise, a financial education charity, offer programs for youths to extend their financial literacy further, such as its "fiver challenge", in which school children are tasked with starting a small business and working together to solve problems.
"Young people today grow up in an increasingly complex world where they are required to make decisions that impact their future at a much earlier age than previous generations," Michael Mercieca, chief executive of Young Enterprise, said in an emailed response to questions.
It is important to increase future generations' levels of financial literacy, but financial literacy cannot stop after primary school. Bobby Duffy, managing director at the Social Research Institute at Ipsos/Mori, believes educating children is important but largely symbolic because it is difficult "to make content relevant when the big decisions come later in life".
And what about adults who have completed their academic education, but could use some financial education? "The key need is not just to improve financial literacy but to improve financial capability, which is a broader concept that includes knowledge, but also skills like the ability to budget," Duffy says.
He believes a solid route is to get timely help relevant to the decisions you need to make, rather than trying to learn every aspect of finances all at once. He says this will help because you are actually working through something, rather than listening to advice or theory. Much as you must learn addition and subtraction before you can solve complex equations, seeking help to learn each step as you go can help you build the foundations of knowledge you need for later financial milestones. Making it easy on yourself is the key to making knowledge stick, Duffy says.
Jake Eliot from MAS points to a number of resources to learn about money matters.
"Friends and family are a good starting point, and there are a wide range of organisations from banks to price comparison sites," Eliot says. "[Free advice services, such as the Money Advice Service, are] a great place to start."
Published: 10 July 2015
- How your debt, mental health issues are related – If you're struggling with debt and mental health problems, you'll find it's better to admit the problem, rather than try to hide it ...
- Is your debt hurting your kids? – Your worries and stress over bills and debts can negatively affect your children's mental and physical health ...
- What Brexit might mean for credit card consumers – Financial markets were thrown into turmoil following the UK's vote to leave the EU. Here's how the decision might affect UK cardholders ...