Financial jargon is often overwhelming and baffling but having a high ‘personal finance’ IQ is important if you want to make the most of your life. Unfortunately, it appears that many consumers do not realise this and the UK is blighted with huge levels of ignorance towards financial concepts.
A recent online survey carried out by Stroud & Swindon illustrated this point. Most consumers had a basic understanding of personal finance and were able to accurately explain pick the right abbreviation for annual percentage rate (APR) and identify who sets the Bank of England Base Rate. However, more complex financial concepts confused consumers. Only 60 per cent of respondents knew that you only pay Stamp Duty on a house purchase and many did not believe that ‘current account mortgages’ existed.
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These worrying figures underline a desperate need for financial education in the UK and reaffirm the lack of personal finance awareness. Surely, there must be something being done to teach adults and the next generation about these issues?
Having enough impact?
The Financial Services Authority (FSA) is pushing to make personal finance a key issue in the school curriculum. Currently, there is a basic level of personal finance being taught in schools, with 91 per cent of secondary schools claiming to deliver some form of financial education to their pupils. However, this doesn’t state how effective the classes are, or whether they are having enough impact on children.
A recent survey by the Personal Finance Education Group (PFEG) highlighted children’s ignorance of basic personal finance concepts. The survey found that 5 per cent of teenagers believed they didn’t have to pay back debt they built up on credit cards. Worse still, 25 per cent of 18 year-olds thought that any money they spent on their credit card would be paid off by their parents. With 18 being the age at which we are deemed old enough to take out a credit card, more must be done to ensure they understand the implications of such products.
This is something the government has vowed to undertake, with a revised curriculum due to include personal finance issues for 2008. At Stroud & Swindon we have plans to launch a financial education workshop with local schools, as part of the work we carry out in the local community. We hope this gives us a chance to put personal finance knowledge high up on the agenda with children from an early age. However, there doesn’t seem to be as much focus on educating adults about their finances.
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A certain amount of responsibility lies with the individual to research products, read about the latest offers and review their finances to ensure they are getting the best deal for their money. However, consumer education is still very important and is an obligation of the financial services industry.
Benefiting business
It benefits businesses to provide consumer education as it gives consumers the confidence to purchase more products. When customers feel in control of their finances, it leads to increased business – you are unlikely to invest a lot in a product where you have little understanding of the implications and are made to feel inferior as a result.
Not only does it give the consumer more confidence to deal with their finances, it also strengthens the relationship between financial services and the consumer. A lack of understanding on behalf of the consumer can lead to them feeling as if someone is trying to ‘pull the wool over their eyes’. Complaints surrounding mis-selling often stem from a lack of understanding, leading to trust issues between lenders and customers.
Undertaking this customer education falls under the ‘Treating Customers Fairly’ (TCF) banner which, as we all know, is of paramount important to the industry, as well as the FSA. This is definitely something that we should be aiming for in our customer education and client internation.
Keeping on top
So, where does this leave us? With spiralling debt and rising insolvencies it seems there is a severe lack of emphasis on how important it is to understand and be on top of your finances. Obviously the government’s new initiative to try and build financial education into a core part of the curriculum is a welcomed measure but how beneficial this will be remains to be seen. We must all take responsibility with regards to our finances, but there must also be an obligation within financial services businesses to ensure people are being treated fairly and educated about their finances.
Current measures to provide financial education clearly need to improve, but will it be enforced and will it be enough? So many question – let’s hope we come up with some workable answers quickly or the future is not bright.
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Paul Chafer is sales director at Stroud & Swindon BS
