Most peoples’ financial affairs are quite simple so why is the comms so complicated?
• 4 minute read
The financial services industry is full of paradoxes.
Take financial advice. Those who need it the most are often the least able to afford it, and vice-versa.
Similarly, retail customers less well versed in financial services and experiences are being empowered by the availability of online information to educate themselves, create communities actively talking about finance-related topics and then use all this knowledge on easy-to-access platforms.
Yet recent research from the Financial Conduct Authority, the industry regulator, found that half the population has low confidence in making decisions to do with money.
And a poll by the Financial Times and Ipsos Mori found that barely half of 3,000 respondents were able correctly to compare the costs of borrowing via credit cards or bank overdrafts, regardless of their wealth, ethnicity or gender.
The report found that already vulnerable communities find their problems worsened by low levels of knowledge about how debt interest is calculated, how it compounds and how to mitigate risk or budget effectively.
But the other groups with financial literacy shortcomings answered questions on those subjects with similarly low scores. Asked, for example, whether (a) £105 or (b) £100 plus 3 per cent interest was the lower sum to repay on a £100 one-year loan, only 72 per cent of those living in the most deprived fifth of English neighbourhoods knew the answer was (b), compared with 86 per cent of those living in the best-off areas. The tally for women was 77 per cent, ethnic minorities 66 per cent and 16-24 year-olds 69 per cent.
A basic understanding of how money works is essential so that we have the confidence as we go through life to handle anything from child trust funds, student loans and buy-now-pay-later deals, to mortgages, pensions savings and funeral plans. But we seem loathe to ask for support.
That’s because, as the FT’s Personal Finance Editor Clear Barrett put it recently, our emotions are deeply intertwined with our attitudes to money: “Asking for help — either for practical advice, or to be bailed out — carries a huge sense of shame. It is something most people feel they must deal with alone.”
As a result, the default response is to duck the issue.
For example, we all know that most people are not saving enough for their retirement. Infinite Global’s recent pensions report found that across all age groups and demographics, people are uninterested in and apathetic towards pensions, with more than half (55%) of Britons saying that they do not look for pensions information from any source.
Such inertia poses significant challenges not just for individuals but for all stakeholders, and especially for communicators.
This is why the role of employers in particular matters.
Learning needs to continue beyond the classroom and further education. In the case of pensions, boosting financial literacy in the workplace makes sense as this is where lifetime savings are commonly accrued. And as pension schemes become less generous, employment more insecure, and ‘jobs for life’ a thing of the past, these are skills people are going to need more than ever to navigate their financial lives.
Most people’s financial affairs are relatively straightforward. It is incumbent on the financial services industry in general, and employers in particular, to make sure their communications are just as simple.
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