Almost half of the UK lacks basic financial literacy

In a recent survey, nearly half of UK adults were found to lack basic financial literacy and were stumped by savings, ISAs and retirement funds.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Woman pulling baffled face

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The decisions you make about your money can have a huge impact on your life. But a recent survey of 2,000 UK adults by investment app Freetrade found that nearly half of them lacked basic financial literacy and couldn’t answer simple questions about personal finance. Here’s what else the Freetrade study found.   

How financially literate are British adults?

The survey covered savings, investments, ISAs and retirement – topics that most of us will come across at some point in our lives. 

Amongst the questions asked, adults were quizzed about what the letters APR and ISA stood for. Just 48% of respondents passed the test overall.

The topic with the highest number of right answers was ISAs with 68% passing this section. Worryingly, retirement was the area where people knew the least with a staggering 80% failing to answer correctly. 

Knowledge was also split down gender and age groups with more men passing the financial literacy test (52%) compared to women (46%). People aged 55+ also scored better than their younger counterparts aged between 18 and 24 (55% and 50%, respectively). 

Pass rates were also analysed by location, although, to be fair, there wasn’t much in it. Brighton came top of the charts for financial literacy with a 55% pass rate, followed by Manchester at 54%. The city with the lowest score was Bristol at 52.9%. 

[top_pitch]

How confident are British adults about their finances?

Sadly, 88% of adults didn’t feel confident in their own financial literacy with more women (91%) acknowledging their lack of confidence. 

Perhaps then, it’s no surprise that 45% of people said dealing with their finances had a negative impact on their health.

Interestingly, when Freetrade broke down figures by city, money-related stress stood out as a common theme regardless of location. In fact, the top five cities and the percentage of residents admitting financial stress were:

  1. London 55% 
  2. Belfast 44%
  3. Plymouth 43%
  4. Bristol 42%
  5. Glasgow 42%

When pushed, the vast majority of adults questioned considered themselves ‘unknowledgeable’ when it came to their personal finances. This was most keenly felt in investments where 91% of people said they lacked know-how. Similarly, 90% of adults felt they knew little about retirement, 88% knew little about ISAs and 83% were not clued up about savings.  

For Dan Lane, Senior Analyst at Freetrade, it’s the lack of insight about retirement that stands out. He explains: “There should be alarm bells ringing here. With advances in medical technology and increased life expectancies, we’re likely to live longer in retirement than ever before.

“But a massive gap in our understanding of how to invest for our third age, or even how to access those investments suitably later on, means we really aren’t prepared for a sizable portion of our lives.” 

[middle_pitch]

Where are adults getting their financial education from?

Despite 76% of adults agreeing that financial literacy should be taught in schools, 39% actually turned to Google for information. More than a quarter (27%) used social media, including platforms such as TikTok and Reddit, while 18% sourced knowledge from YouTube. 

And while it’s great that we have a wealth of online sources to access, there’s also the risk of engaging with false information and, even worse, being scammed. 

Why is financial literacy so important?

Poor financial literacy stops us from making the most of our money. And as the study shows, it’s not just that many of us lack knowledge. Low financial confidence affects our emotional wellbeing too, which can impact every aspect of our lives. 

To invest in your financial education, why not take a look at our savings guide, our complete guide to online share dealing, our credit cards guide, and our loans guide.  

Plus, if you want to check out your own financial literacy, you can take the Freetrade test yourself

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »