Welcome to our first post of a series where we will be delving deeper into financial education – what it means, where we can access it and how we can improve it.
What is financial literacy?
To start, it’s important to understand what it means to be financially literate. The S&P Global Finlit Survey describes it as “the ability to understand essential financial concepts in making informed decisions about saving, investing and borrowing”. Finance expert Veneta Lusk defines it as “a person’s knowledge and application of personal finance concepts, such as budgeting, investing and managing their finances”.
The global outlook
Only a third of adults across the globe are financially literate, according to research by the Global Financial Literacy Excellence Center (GFLEC).
Financial literacy rates differ when you consider gender, education level, age and income. Worldwide, 35 percent of men are financially literate, compared with 30 percent of women¹. In addition, “women tend to have not just lower knowledge, but a lower confidence in their financial knowledge than men,” said GFLEC’s Academic Director Annamaria Lusardi, adding financial education needs to be taught in schools to overcome this gender disparity.
In the UK, 50% of the population are considered as financially vulnerable, which could be a reflection of a nationwide lack of financial education. This figure is likely to rise in light of the pandemic. England and Northern Ireland have been dubbed as “facing a crisis in adult financial literacy” after research from the University of Cambridge and the University College of London found one in three people could not carry out everyday calculations. England and Northern Ireland came out as the worst performers on everyday financial numeracy – even when it came to using a calculator – only beating Turkey, Russia, the Czech Republic and Israel.
Why is financial education important?
Being financially illiterate can affect anyone, regardless of age, background or job title. It can affect those who are wealthy just as much as those whose resources are stretched. But it’s never too late to learn for anyone and it seems people in the UK need more help than ever to improve their financial wellbeing.
Even before the pandemic, the figures regarding people’s debt and saving habits were eye-watering. According to the Money and Pensions Service:
- 39% (20.3 million) of UK adults don’t feel confident managing their money
- Nearly nine million are in serious debt and around only a third receive help
- 11.5 million have less than £100 in savings
These findings show that there is an urgent need to educate people about how to handle their finances. The basic foundation of knowledge includes, understanding how to write a budget every month, how to save to build assets and implement a diverse financial plan so that they can have the financial security that they deserve.
Having a solid understanding of money management will empower people to make the right decisions and help them ultimately achieve their dreams and goals.
How to improve your financial education
Getting started can be challenging. A great first step is to understand your personal attitudes to money: what type of money personality are you? Are you a spender or saver? It is worth taking time to think about this first, as building the foundations of your financial knowledge works hand in hand with your personality type. Once the relationship with money and how emotions could be driving consumer habits has been established, the next step towards financial wholeness is through financial education. If people equip themselves with the right financial knowledge, they’ll be far better placed to make good financial decisions in the future.
As mentioned before, it’s never too late for someone to learn how to put their finances in order. Whether people want to be debt free, are keen to save or invest in the stock market or a mutual fund, there is a wealth of printed and online material in the public domain available to kick start the journey. If people need more guidance concerning their finances, there are unbiased online education platforms such as Mintago to talk them through the steps required to give them peace of mind and control over their finances.
Here are five quick steps to become financially literate:
- Maximise earning through establishing a budget every month
- Pay off your debts as soon as you can to build margin into your life
- Begin saving as a habit for life
- Create a diverse financial plan and do your research about products and services
- Limit expenses and liabilities