According to a recent Forbes article, a significant proportion of the UK population is financially illiterate. This is especially worrying in the lead up to a general election because policies and pledges on tax and finance from the government and the opposition parties will be widely debated and scrutinised. A lack of general understanding in key financial areas like taxes, interest rates, insurance, budgeting and saving, will affect people’s ability to figure out what impact these promises and manifestos will have on the country’s overall financial security as well as their own prosperity. Here, Bruce Martin, CEO of Tax Systems, discusses how to ensure financial literacy, and why it matters.
Financial literacy underpins stability and security
Personal finance is more than comprehending our own spending and saving habits; it also concerns the wider economy as recent rises in interest rates and inflation have amply demonstrated. That’s why financial policies are central to political agendas and why citizens must be suitably equipped to assess opposing tax measures on a basic level.
In a world where finance and tax have become ever more weaponised politically speaking, it is vital that the electorate can read the ‘small print’ and understand the nuance of varying financial predictions and promises. After all, taxation pays for all the services in our communities from policing to healthcare to education and beyond. So voters do somewhat have a responsibility to recognise the impact their decisions can have on the provision of these services.
How dire is the UK’s financial illiteracy?
The recent research from Forbes suggests the problem of financial illiteracy is more common among younger people, where TikTok and other digital channels provide financial advice to 26% of 18–24-year-olds. Broadly speaking, compared to other developed countries, the UK underperforms; it ranks 11th in the world for having the highest household debt - almost 1.5 times its disposable income.
Financial literacy is crucial not only for individuals but also for the overall prosperity of the UK. A population that understands the essential elements of saving, investing, and managing debt effectively, contributes to economic stability and resilience. Sound financial acumen encourages active economic participation, boosts productivity, and fosters innovation and entrepreneurship, which in turn drive growth and social mobility. Moreover, enhanced financial knowledge leads to a more informed and engaged society, better equipped to differentiate between political rhetoric and credible information.
There can be no doubt that financial literacy empowers citizens to contribute to economic stability, both at a personal and national level.
Who’s responsible for improving the UK’s financial literacy?
At the end of the day, the government is responsible for defining the educational agenda, setting financial education policies and providing the necessary resources. However, this is a shared responsibility, requiring input from educational establishments, financial institutions, employers, and parents as well.
Encouraging financial literacy from an early age helps upend generational cycles of debt, which are endemic to the UK. This can be done by integrating essential financial skills into the curriculum using modern, interactive digital channels for increased impact. By making financial concepts more understandable, and using practical examples, students become more engaged, more responsive, and more likely to learn.
Employers also have a role to play. More employees are requesting financial education, embarrassed by their lack of knowledge. This gives companies a golden opportunity to make financial planning, investment advice, debt counselling, and pension planning a key part of their offering to new recruits.
However, as with most things, it all begins at home. Research shows that almost a third of parents and carers don’t discuss money with their children, meaning this key early opportunity to learn is missed. Parents can lead by example in openly demonstrating budgeting, saving and debt avoidance while involving the kids in household fiscal decisions. Setting realistic goals for children in terms of saving will also help instil healthy habits when it comes to money.
For a modern economy to thrive, it needs financially literate citizens who understand the basic principles of fiscal policy. By making it central to education, employment and parenting, we can equip future generations with the skills that today are sorely lacking and build a country fit for the future.
