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Lack of financial literacy leaves Brits struggling with basic concepts around savings, ISAs, pensions and investments

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A new study has revealed how a lack of financial education has left people across the United Kingdom confused by their own money with detrimental effects on their confidence, mental health and financial wellbeing.

Investment app Freetrade created the Great British Financial Literacy Test—18 questions about savings, investment, ISAs and retirement that everybody will likely encounter at some point in their lives.

Asking 2,000 British people to complete the test, Freetrade discovered that almost half of them (48 per cent) could not answer basic questions about personal finance including what an ISA stands for, the difference between fixed rates and variable rates, and what your annuity provider does when you retire.

Retirement was the area of personal finance that people struggled to understand the most with 80 per cent of Brits unable to correctly answer this part of the test. This figure was 81 per cent among respondents aged 55+ approaching retirement age.

The pass rates for questions about investment were the second lowest at 44 per cent. This was followed by savings at 34 per cent and ISAs at 32 per cent.

Equally as alarming as the low pass rates across the UK were people’s lack of confidence around aspects of personal finance. Overall, 88 per cent of Brits say they lack confidence with their money, and one third of Brits (32 per cent) said this also led to a negative impact on their mental health.

An overwhelming majority of respondents (91 per cent) told Freetrade they lack confidence in investment. 90 per cent of Brits similarly lack confidence in managing their retirement money, according to the study. 88 per cent of the UK also lack confidence when it comes to ISAs.

Dan Lane, senior analyst at Freetrade, says: “The greatest advantage you can give your investments is time. So it’s concerning that the cohort with the most time on their hands feels so ill-equipped. Whether we realise it or not, investing early on in life could be the difference between reaching our eventual financial goals or missing them entirely. Getting to grips with the basic concepts later in life might just be too late.

“There should be alarm bells ringing about the fact that 90 per cent of Brits lack confidence with their pensions. With advances in medical technology and increased life expectancies we’re likely to live longer in retirement than ever before. But a massive gap in our understanding of how to invest for our third age, or even how to access those investments suitably later on, means we really aren’t prepared for a sizeable portion of our lives. Unless we’re thinking about investing for retirement long before we get there, we could end up in the awful position of regretting the simple financial decisions we made 30 years ago.

“It’s a real sign of the nation’s lack of financial education when a huge portion of the population doesn’t know the name of one of the most common savings products. The frustrating thing about the lack of confidence around ISAs is just how helpful, accessible and easy to use ISAs can be. Chances are, if we’re unsure about the headline facts around ISAs, we’re not using them to help us as much as we could.”

Brighton was the city discovered to be the most financially literate, according to Freetrade’s study. Pass rates there were 55 per cent, much higher than the national average. Sheffield, however, was discovered to be the city with the lowest financial literacy with only a 47.6 per cent pass rate.

Dan Lane, senior analyst at Freetrade, says: “There are regional differences on show but the overall takeaway is that we still need a greater focus on financial literacy all across the UK.

“Basic concepts like compound interest might be ticked off in the National Curriculum but setting us up to deal with that in the real world takes more than a textbook exercise.

“These results should be a wake-up call for the nation’s education system to equip young people well enough to put theory into practice.”

Struggling to understand finance, Brits are turning to the internet for help. 23 per cent of Brits make Google their first stop for learning about personal finance—the most popular answer among respondents. The second most common answer was social media with 16 per cent of Brits saying they would get financial education from platforms like Instagram, TikTok or Facebook.

Dan Lane, senior analyst at Freetrade, says: “Young people are taking their future into their own hands and being proactive in addressing the gap in their financial knowledge. The results show that previous generations have clearly muddled through to retirement without ever getting a firm grip on their money management and the youngest Brits have said enough is enough.

“Social media can make the headlines for the strangest of reasons but dismissing these platforms means ignoring the truly valuable educational content young people are finding on them. These are free resources and guidance tools dealing with money matters in a way that engages and informs a generation who left school without a firm financial foundation.

“Those who diminish the efficacy of these resources have to ask themselves ‘what else is on offer to help?’”

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