A third of people struggle to calculate change and nearly half struggle to understand simple supermarket discounts, according to a survey exploring financial literacy in the UK. The poll of 9,000 consumers, a joint study between Cambridge University and University College London, points to a stark problem: if people struggle with basic numeracy, let alone get to grips with financial products, can we expect them to take more important financial decisions elsewhere in their lives?

How can these crucial skills be bolstered and how much responsibility should our financial institutions take in contributing to the nation’s economic education? Magpie spoke to Sarah Porretta, Strategy and Insights Director at the newly formed Single Financial Guidance Body (SFGB), to find out.

MAGPIE: What is the SFGB and what does it do?

Sarah Poretta: SFGB is a new non-departmental public body combining the Money Advice Service, Pension Wise and the Pensions Advisory Service. We offer free, impartial financial guidance and information to millions of people in the UK over the phone, online and in person. Our mission is to help people make the most of their money at every life stage. A key part of this is improving financial literacy, knowledge and skills.

How would you describe the general state of financial literacy in the UK among adults and children?

A quarter of Britons are “financially squeezed,” meaning they could get into financial difficulty with one unexpected bill. Some 16 million working age people have less than £300 in savings, and eight million of us are in serious debt.1

Low levels of financial capability can result in people making poor financial decisions. Our research has shown that people are managing their money day to day, but far fewer are preparing financially for life events such as income loss, bereavement or retirement. Without the basics in place, dealing with potential income shocks is that much harder. Improving financial capability leads to much better individual and social outcomes.

Our research shows children have a reasonable understanding about money. They recognize some financial products and concepts, are cautious about debt and have a theoretical understanding of the importance of savings and “value for money.” However, we also know that 39% of 16- and 17-year-olds don’t have a current account and 60% don’t have a savings account. Children who never save are the least likely to be confident about managing their money. Only 28% of those who never save say they are confident compared to 63% of those who save often.2

How can the financial sector help consumers become more financially literate?

It’s vital that the financial services industry works together to
build the financial capability of consumers. Almost four in 10 adults don’t feel confident managing their money and an additional 12.9 million people have no savings to fall back on.

The Financial Capability Lab, a partnership between the Money Advice Service, Behavioural Insights Team3 and Ipsos MORI,4 encourages greater collaboration between firms in the sector to improve people’s money management. It was set up in 2016 to generate and rapidly test new, behaviorally informed ideas to solve money challenges. Working with public, private and charitable partners, the next step is to develop the most promising of these ideas into field pilots, building the case for new, effective products and services at scale.

In November 2018, NEST Insight5 and the Money Advice Service launched one of the first of these ideas. It is a “sidecar savings” trial which will explore whether the model can improve workers’ financial resilience today and in retirement, by creating an optimal level of savings. In a “sidecar” structure, contributions that are greater than the auto-enrollment minimum would be managed through a mechanism designed to create an optimal level of liquid savings, while also maximizing long-term savings. Timpson will be the first employer to roll out the trial to more than 5,600 workers. Organizations can visit fincap.org.uk to find out more.

What can other organizations do to help?

Charities can help prevent various groups within society from making poor financial decisions. They can also integrate financial capability into their programs. Any program that intends to offer a holistic solution in this way, for example, mental health issues or unemployment, will need to consider the role financial capability plays. Money worries can have a knock-on effect on physical and mental wellbeing; problems which charities are
often trying to solve.

The education sector has an important role to play in teaching children about money to help them make the most of their finances in the future, plan ahead and avoid getting into debt problems. Research shows that young people who report having had some financial education at school are more likely to save frequently, have a bank account and be confident managing their money.

Lastly, employers play a key role in building the financial wellbeing of their employees. Money worries have a clear impact of how people feel and behave, both in their day-to-day lives and at work. It’s proven that financial worries, and a perception that employers aren’t helping alleviate them, can provoke less effort among employees. Employers could have a positive impact on reducing stress and improving productivity and loyalty by providing support around money issues and encouraging people to seek advice.

Organizations should consider how they can better meet their customers’ needs by building support into their services and communications. There are a range of resources available to organizations on the FinCap website, such as an evaluation toolkit and customer content. Other initiatives offering useful resources include Open Banking for Good, Fair by Design and the Finance Innovation Lab.

How can technology help with financial literacy?

Through the Financial Capability Lab, new research and trials are exploring ways technology can help people make better money decisions. The lab recently partnered with startup Monzo to develop new technologies that increase the financial wellbeing and capability of UK consumers. The technologies will give people more power over the way they use their money by adding controls they can switch on and off. This could include things like letting customers set and work toward goals, or nominate a trusted person who can be notified and asked to approve certain transactions.

You can find out more about the UK’s Single Financial Guidance Body at singlefinancialguidancebody.org.uk

1 — 2018 Financial Capability Survey

2 — Financial Capability of Children, Young People and their Parents in the UK 2016: www.fincap.org.uk/en/articles/financial-capability-uk

3 — Colloquially known as “The Nudge Unit,” the Behavioural Insights Team is a UK government spin-off which applies insights from behavioral economics, psychology and other disciplines to try and solve social policy and other problems: www.bi.team

4 — The opinion polling and market research firm

5 — Pension think tank associated with the UK’s workplace pension scheme: www.nestinsight.org.uk/about-nest-corporation/