In a survey designed to test financial literacy by placing the real definition of finance term alongside some fake ones, it was the UK’s youngest adults that fared the worst. Whilst the findings of this research from online broker Solution Loans may not be entirely surprising given the more limited life experience of millennials, the extent to which these youngsters struggled with some terminology is slightly shocking.
65% of those aged 25-34 can’t spot the correct definition of APR. Annual Percentage Rate is a way of measuring the interest applied annually to a whole range of financial products including loans, credit-cards and mortgages. Its usage is widespread and not understanding it can leave people in serious financial problems, especially if people forget to factor in additional fees.
38% of 18-24 year olds don’t understand what a Balance Transfer Credit Card is. 38% might not sound like lots of people, but remember, that’s more than one in three, and credit cards are a very common financial product.
The poor financial literacy of the UK’s young is particularly worrying given the continued rise of household debts in the UK. Total household debt in the UK now stands at £1.6 trillion.
Its not just understand the basics of borrowing that people in the UK struggle with. The figures from Solution Loans reveal that revealed that 43% of people in the UK can’t explain what an auto-enrolment pension is, despite nine million people having joined the workplace pension scheme since it began in 2012. This comes on top of research from Aviva, that shows 31% of people in the UK don’t know how much they have saved in their pension, and that includes those approaching retirement.
The blind spot that those approaching retirement have for pensions is surprising considering that generally this group had a better grasp of financial terms than those in younger age groups. 61% of those aged 55-64 understand APR, 76% can explain compound interest and 83% know what a balance transfer credit card is.
Amanda Gillam from Solution Loans said: “In the UK, debt and credit is a way of life. It’s how we buy our homes, our cars and pay for many of our bigger purchases.
“Yet we found that when it comes to understanding how financial products work and specifically how interest and debt are calculated, as a nation our financial literacy is lagging. This is especially the case for the young. It’s worrying to think that especially young people are making potentially life altering decisions based on flawed or know knowledge of the financial products that they’re using. It’s key for future generations that financial literacy is taught, and a better understanding is achieved.”
Author: Oliver Curtis
Hi there. I’m Oliver. I’m just a young boy from the outskirts of… Okay, that’s a lie, I’m not a young boy anymore, although I certainly feel that way at heart.