The report found that the rapid pace of change in the financial services industry has meant that people find it hard to identify the product that best suits their needs. Worryingly they are also unsure about how to get and assess independent financial advice.
NACAB has demanded a national strategy to co-ordinate work on improving levels of financial literacy, and access to impartial financial advice.
David Harker, chief executive of NACAB, said: "Financial literacy is no longer just a desirable trait to be encouraged – it is an essential requirement for everyone if they are to benefit from these changes rather than finding themselves counting the cost."
The report has been welcomed by a number of industry bodies, including the FSA. Deborah Arnott, head of consumer education at the FSA, said: "The NACAB report confirms what we already know, showing how easy it can be for people to get into dire financial straits, through a lack of understanding."
"We have an objective from the Government to improve consumer awareness of financial matters generally. Although consumer credit and borrowing, which is at the heart of many of the problems discussed in this report, lies outside our regulatory powers, we have already done much to tackle the wider issue of financial literacy."
"There is much more to do. It will take considerable resources and a sustained commitment from all quarters – government, trade associations, educational organisations, the money advice sector and of course from firms themselves – to make a real difference."
This view was also supported by the British Bankers Association which has donated £2 million to funding free independent money advice.
Ian Mullen, chief executive of the BBA, said: "Looking into the future it is important that tomorrow’s consumers, as well as today’s, can make informed choices about financial products. The industry is working hard to improve financial literacy through many initiatives."
