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John Lawson: We cannot keep failing on financial literacy

John-Lawson-MM-Peach-byline.pngI recently had a very enjoyable night out with a group of advisers. We could not help talking shop and shared some horror stories of poor financial decisions we had heard people making.

These included taking the tax-free lump sum out of a pension to put into a bank account, taking money out to repay a mortgage with a 1 per cent interest rate (if they paid the money back into their pension instead, the extra return from tax relief alone would be more than the interest on the mortgage) and taking large sums without considering how they would be able to meet the basic costs of living in a few years’ time.

It makes me wince just writing them down.

But we should not be surprised because financial literacy in this country is pretty appalling.

Earlier this year, research from the UCL Institute of Education and University of Cambridge highlighted just how bad things had become.

They found that a third of adults in England and Northern Ireland could not work out the correct change from a shopping trip.

The same proportion could not answer the following question: A litre of cola costs £3.15. If you buy one third of a litre of cola, how much will you pay?

The study also found that four in 10 people could not apply a simple discount to an everyday household product they may buy while shopping.

Worryingly, the study even found that adults in England and Northern Ireland performed worse in everyday financial numeracy tasks than adults in many other developed countries – even when using a calculator.

When faced with these kinds of challenges, getting people to engage with their pensions seems like an uphill task.

And recent research we have undertaken has found people are not doing themselves any favours.

Thirty-one per cent of people we surveyed said they did not know how much they had saved in their pension – and that figure rose to 40 per cent for those aged 46 to 55. A colleague described this as “approaching retirement with a blindfold on”.

I know that some pension statements are not the easiest of reads but finding out how much they have saved for retirement is the least people can do for themselves.

That being said, they do need help – whether that is through the pensions dashboard or maybe through next year’s assessment of the Financial Advice Market Review, which did not really deliver what the industry hoped for first time around.

Boosting financial literacy is going to take a combined effort from across the industry.

Waiting for legislation or new guidelines is just going to lead to more people making decisions against their best interests.

Advisers and providers need to keep finding simple and innovative ways to share financial education that will resonate with an audience that desperately needs it.

John Lawson is head of financial research at Aviva



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. I’m not surprised people couldn’t answer the cola question John. Today at Tesco – 2 litre bottle of Coke = £1.66 (£0.83 a litre). 330ml can = £0.75 (£2.27 a litre). Where do your survey team buy their cola?

  2. “taking money out to repay a mortgage with a 1 per cent interest rate (if they paid the money back into their pension instead” – isn’t that recyling? Surely you are not advocating that?
    The examples are more to do with basic maths – which is even more worrying.
    But agree much more needs to be done … at school, at home, in employment. All have a role to play.
    and providers need to ensure access to the PAA – yes it is too little for proper advice, but its a start and too few pension providers are enabling it.

  3. Trevor Harrington 26th November 2018 at 10:49 am

    As long as we continue with our socially and politically correct concepts, this will always be the case, and indeed, it will get worse.

    The various public sector professions are never criticised for their obvious inability to perform, let alone their ridiculously short hours of work, their inability to dismiss their own underperformers, or their crazy levels of pay and benefits, including their utterly unaffordable pensions.

    The other day (?) I was listening to a report, which said that more than 20% of pupils leave school whilst being unable to do one of the primary three objectives – reading writing, and arithmetic. At that time, I was struggling to employ Financial Advisers because I could not find any that were capable of working out a simple percentage.
    When was this ? – 25 years ago in the early 1990s.

  4. Good grief Mr Lawson, aren’t you aware of the lamentable literacy and numeracy prevalent in general in the UK?

    Britain has up to eight million adults who are functionally illiterate. The World Literacy Foundation said one in five of the UK population are so poor at reading and writing they struggle to read a medicine label.

    England has the highest proportion of graduates in school leaver jobs (28%) of any developed country because they lack basic numeracy and literacy. They just don’t have the maths and English. How do they get into University, let alone get a degree (sports management??)

    Of 700 social science undergraduates over 9 universities only 25% had sufficient numeracy needed for daily life and the workplace. OECD Findings.

    About 45% of tuition fees will not be repaid owing to the low incomes of these ‘graduates’. The cost will be borne by the public sector. (The taxpayers)

    So rather than lamenting financial illiteracy, we need to tackle illiteracy in general and that is not our job, but the government’s.

    • @Harry – You and I tend to agree on a lot, but ome thing we don’t is how useful Lifetime cashflow planning spoftware can be versus using a simple spreadsheet.
      As they say, “a picture painst a thousand words” and having some very bright clients and some whe could be said to be completely the reverse, the one thing that all seem to have in common is an inability to look at the number representing their total wealth or their income or their expenditure and relate that money to an actual or a potential lifestyle.
      That is where we find that for (most but not all) clients a visual representation of their financial situation over time is the liberating issue for their financial literacy.
      The written word is bot only language limiting, but socially limiting (shooting over a wall means something different in English to American as I once found out nearly to the American’s fatal outcome). Had I pointed with my fist and punched (and made firing noises except you can’t hear very well with ear defenders) he would have got it first time. If I had wanted him to commit suicide, I could have just waive him over with my arm, OR used our common language and realised there are common misunderstandings as I did on this first occasion and haven’t since.
      To advise well, we don’t have to have literate clients, nor financially literate clients, nor speak the same language, we just need to identify where common understanding is and then deliver a message in the manner that suits the consumer best.
      I have seen an even worse misunderstanding of common language including “pin, grenade” *sound of metal on wood* ….and then “get out, get out” and that is the wrong person acting on the right message.Again nearly fatal until others realised the misunderstanding and jumped on the incorrect recipient BEFORE he ran in to a danger area others were trying to get out of. T
      The latter situation is where some on-line commentators can put consumers at risk where what is entirely sensible for one person in a particular situation is completely inappropriate for someone else hearing the same message.

      • PHil

        I don’t follow. What has this got to do with my post? In essence far too many in the UK are very illiterate and hardly numerate. They wouldn’t recognise a lifetime cash flow or a spreadsheet from a hole in the ground. Anyway these people are hardly likely to be financial adviser clients.

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