I 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