Do you understand your personal, financial situation thoroughly? Almost half of UK adults admit to struggling with financial literacy. However, not all adults are the same. A closer look at the numbers shows big differences between the genders as well as age and ethnic gaps.
A recent survey by investment app Freetrade found that only 48% of UK adults could pass a test on basic financial questions. In the same study, 88% of participants admitted they had little or no confidence in their financial literacy. The researchers identified the biggest lack of knowledge when it came to saving for retirement age in the UK.
Women are more at risk of being underprepared for later life than men. Investment specialist Fidelity International recently published research showing that 42% of women in the UK did not know how much they had saved for retirement. In comparison, only one in four men was unable to confirm their retirement funds.
The coronavirus pandemic has compounded the situation, with women more often caring for sick family members than men, on top of an already existing gender pay gap. Perhaps unsurprisingly, men were more likely to pass the financial literacy test by Freetrade than their female counterparts.
The problem is compounded in ethnic minority communities. Both black and Asian people are less likely to seek financial advice in the UK. In Asian communities, some of the reluctance may stem from cultural differences and a tendency to want to keep financial topics private.
For ethnic minority women, inequalities are based on both gender- and ethnicity-related factors. Many women in this community have low-paid jobs in the UK, limiting their ability to save for retirement or even consider investments. Plus, financial literacy levels are below average for this group.
Improving education on finance in schools is one way of levelling the playing field between genders and ethnic backgrounds. Financial literacy has been part of the national curriculum for secondary schools since 2014. However, not all schools need to follow those provisions. Students in private schools and faith schools, for example, might miss out.
In addition, some schools may skip financial education for their pupils because teachers are not qualified adequately. Teacher training does not cover financial literacy. Cultural differences also play a role, with interest forbidden under Islamic law. As a consequence, teaching Muslim children about mortgages and other financial products may not be appropriate.
On the other hand, it is hard to overemphasise the importance of early financial education. Learning about basic budgeting during childhood can help avoid becoming overindebted later.
This is part of the reason behind the Scout Association’s decision to launch a money badge. Aimed at children aged six to ten, the goal of the badge is to improve children’s understanding of money management even before financial literacy is taught in schools. Starting financial education early has huge benefits, as experts found that children’s attitudes to money are already developed by the age of seven.
As the coronavirus pandemic has forced many households to reassess their financial situation and tighten their belts, basic financial literacy is more important than ever. Distinguishing between needs and wants, budgeting responsibly, and understanding debt all are key skills for a financially solid future.
Alpesh Patel OBE