Lack of financial education has cost Brits nearly £250 million in charges and penalties alone, with almost a quarter (24%) having been hit by charges because they don’t understand the terms and conditions of financial products, according to new research from uSwitch.com. Moreover, almost three quarters of Brits (71%) say that a lack of basic personal financial understanding is to blame for debt. And with the level of personal debt already exceeding £1.5 trillion, the Government’s decision to shelve plans to add financial education to the curriculum could be a costly one.
Less than one in ten people (7%) think we are financially educated as a nation. Four in ten people (40%) saywe’re less financially educated than previous generations, while seven in ten (70%) say that personal finance is a lot more complicated today than it was previously. Consumers now face a vast array of products, from bank accounts and credit cards to different mortgages and high interest pay-day loans. But as personal finance has become more sophisticated, our understanding has shrunk, leaving a knowledge gap that is costing people dear.
Despite the fact that consumers can take out financial products such as credit cards and loans as soon as they hit 18, worryingly, on average most people don’t become knowledgeable about personal finance until they are 27 years old. But age offers no guarantees – 16% of Brits didn’t become knowledgeable until at least 35 years old, of these nearly 9% don’t get up to speed until their forties.
The research shows that most people now learn about personal finance the hard way through trial and error. 81% pick up their personal finance knowledge along the way, while just 7% learn from their parents and 4% from banks. With the majority learning as they go and the average age of first time buyers on the rise, this could push the age of financial maturity in Britain even higher.
Consumers are also worried about the future. Less than 5% feel that today’s youth are well informed about basic personal finance and 95% say that personal finance should be taught in schools. Missing the opportunity to educate future consumers could be a costly decision and 89% say that it was wrong of the Government to shelve plans to add financial education to the curriculum.
The Financial Fairy Tales are a series of fun financial education resources for use with younger children wither at home or in primary schools
Ann Robinson, Director of Consumer policy at uSwitch.com, says: “Our poor understanding of personal finance is costing us money and now looks to be getting worse with each generation. While our debt is increasing, our knowledge is decreasing – the situation is a ticking time bomb. The Government needs to start taking this seriously and should urgently re-instate plans to get financial education onto the curriculum. It’s not the only one with a large debt issue to overcome – consumers owe £1.5 trillion in personal debt and need the basic knowledge and understanding to get this back under control.
“It’s also vital that those who are beyond school age stay on top of this too. Taking the time to understand any personal finance product you are signing up to will save you money on interest rates and charges that can catch out the un-savvy consumer. By doing this and keeping an eye on your credit rating, you’ll also be better placed to get the best deals on the market on your credit cards and bank account – which could save you over £400 a year.”
