RESIDENTIAL Opinion
Bridging the financial literacy gap
L
et’s be honest, the current state of the UK’s financial literacy is concerning. A recent survey found that nearly 23 million people – or two-fi hs of the population – lack basic financial knowledge. If people don’t have an understanding about mortgages, savings or how interest rates work, how can they make informed decisions about their future? A er all, these are some of the biggest financial decisions a person will ever make. Increasingly in today’s intermediary-driven market, they are made with the help of a mortgage adviser, and given the stats, there’s no underplaying the vital role they have in helping to boost the country’s financial literacy. This is especially true with the Consumer Duty regulations now in place across all financial services. Mortgage advisers have a duty to ensure their clients fully understand the products and services being offered, as well as the features and potential risks. Where there are knowledge gaps, advisers must be prepared to provide additional support, not just to ensure informed decisions are made, but good outcomes are delivered. But it’s not their duty alone. The size and scale of the issue is massive and requires a fully joined-up approach. In a study by the Global Financial Literacy Excellence Centre, just 20% of UK adults could answer three basic financial questions correctly. Meanwhile, a survey by the Centre for Economics and Business Research found that young people aged 16 to 18 scored an average of just 2.3 out of 10 on financial literacy questions. There’s no question that we need to catch this early and educate young people
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The Intermediary | October 2024
PETER O’CONNOR is CEO of Target Group
on basic financial topics before they leave school.
Education initiatives Take the US for example – every April is Financial Capability Month, when the Government dedicates an entire month to financial literacy awareness. There’s a huge opportunity for UK Government to do something similar. The first place to start is integrating financial education into the national curriculum, particularly as part of PSHE. These stepping stones can then become the foundations for future generations to have the skills to manage their finances responsibly. This should not be limited to just schools, either. Employers can play their part too, especially those with bigger workforces that can offer workshops on financial management to their employees. Not only will this help improve knowledge but enables employers to build resilient workforces.
Accessibility and collaboration Alongside a change in curriculum, advisers need financial institutions to pull in the same direction. Research by Habito found that an A-level education is necessary to fully understand a mortgage contract, yet almost half of the UK adults don’t have that level of education. Just as concerning is the fact that 75% of homeowners admi ed that they signed their mortgage contracts without fully reading them. While mortgage advisers can help by explaining terminology and simplifying the complex jargon found in mortgage contracts, lenders should be doing more to simplify documents and to use plain English. Let’s not forget that making sure these key documents are accessible
for all is another key requirement of Consumer Duty. With all the buzz around technology and artificial intelligence (AI), it is high time banks and lenders collaborate and create resources and tools to make it easy for everyone to understand complex financial information. Audio-visual explainers, infographics, and online tools like mortgage calculators go a long way in building the foundation for an informed and resilient society.
Community support One thing we can all benefit from is the communities we live in. Local councils and community groups can set up knowledge exchange sessions where experienced homeowners share their insights with first-time buyers. Mortgage advisers can also get involved too, whether it’s local newspaper columns or hosting sessions for local community groups or clubs, helping buyers to understand the market and make informed choices. We cannot achieve financial literacy in the UK with a ‘one-size-fits-all’ solution. It will take years of hard work and plenty of collaboration. But it’s far from an impossible task. With education, Government intervention, and a collective effort, a financially literate, resilient population can certainly be a reality. Whether they realise it or not, mortgage advisers sit on the frontline in this mission. By educating their clients and increasing knowledge, they can not only help them achieve their goals, but nurture true loyalty and ultimately help to bridge the financial literacy gap. ●