Credit, Collections & Insolvency News
New research from Pay.UK has reveald a gap between how much people say they understand about money and the reality. The research reveals 78% of UK adults consider themselves financially literate yet 71% of respondents don’t know how a savings account works.
Financial literacy alone doesn’t always safeguard individuals from financial difficulties. Among those who view themselves as financially literate, a fifth (19%) run out of money every month. This figure climbs to 41% for those who don’t consider themselves literate. Even among respondents who feel confident in their ability to manage finances, over a quarter (27%) find themselves running out of money up to every two months.
However, it’s also important to note that over a quarter of UK adults (28%) save regularly with a plan for rainy days and just 6% don’t save at all. 35% of Brits use a manual approach to manage their finances (such as notebooks and spreadsheets) and 30% have taken the initiative to learn about financial terms like pensions and taxes outside of school. There is strong demand for more support with personal finance education within school years with 86% of UK adults agreeing it should be on the national curriculum.
Furthermore, the findings show that only 32% of those who consider themselves financially literate could correctly calculate compound interest on £1,000 invested at a 5% annual rate. Additionally, 29% of these respondents could not define what a savings account is, and 35% struggled to explain what an ISA (Individual Savings Account) is.
The generational divide is particularly striking. While 88% of those aged 55 and older feel financially literate, only 57% of 18-24-year-olds share the same confidence. In addition, 35% of men feel confident managing finances, compared to 25% of women.
This research from the Current Account Switch Service also shows that managing personal finances is a source of anxiety for many, with 23% of respondents reporting that managing money makes them feel stressed.
John Dentry, Product Owner at Pay.UK said “These findings highlight the gap between perceived financial literacy and practical knowledge, as well as the strong desire for more financial education. In a challenging economic environment, it is more important than ever to ensure that people across the UK have access to the education and resources so they can feel more assured about managing their finances effectively. From understanding the basics of savings accounts to navigating more complex products like ISAs, there is a clear demand for better financial literacy initiatives across all age groups.
A good starting point for building confidence when managing your day-to-day finances is considering whether your current account meets your needs. Researching the right account can help you learn more about managing your money. Switching to a bank that offers better tools, support, or even rewards can help people feel more in control of their money and encourage better financial habits.”
Alastair Douglas, TotallyMoney CEO said “Everybody should know their EAR from their APR, and their BACS from their CHAPS — and teaching children how to borrow, save and spend would put them on the front foot when leaving school. Without it, millions of young people are exiting education without the financial knowledge they need to get by, meaning many will learn the hard way.
“A key problem is that while it should be simple, personal finance isn’t. For years, the big banks used people’s data for their own benefit, and it was never clear how or why they made the decisions they made. They need to improve transparency, rebuild trust, and put people in control of their financial futures.
“It’s also the duty of the government and financial institutions to make sure that products and services are simple, comparable, and secure. Only that way, people will be able to make the right decisions, and avoid those which impact their financial lives for years to come. However, current account switch offers are becoming ever-more complicated, mortgage arrangement fees continue to make products harder to cross-compare, and we’re still waiting for buy now pay later regulation.
“If you’re struggling to manage your money, then consider downloading a personal finance app which gives you free access to your open banking and credit report data. It might sound complicated, but you’ll get insights into how you’re managing your money, who banks choose who to lend to, and what options are available to you. So really, it’s a great way to start learning about how everything works.”