Having financial literary is important for people of all ages to understand how to earn, save, borrow, and protect their money wisely.
Financial literacy is also crucial for developing short and long-term financial habits that contribute to people's overall well-being.
Despite that, a new research found almost half of British adults could not answer basic personal finance questions, such as what an ISA stands for and the difference between fixed and variable rates.
"It’s a real sign of the nation’s lack of financial education when a huge portion of the population doesn’t know the name of one of the most common savings products," said Dan Lane, senior analyst at Freetrade.
Retirement was the area of personal finance that Britons struggled to understand the most with 80% of respondents unable to correctly answer this part of the test. This rose to 81% among respondents over the age of 55 who are approaching retirement age.
Those in Brighton were the most financially literate, according to Freetrade’s study. Pass rates there were 55%. While on the other end, Sheffield, scored the lowest in the financial literacy test — at 47.6%.
Londoners are the most stressed about money amid higher living costs, with 52.4% of those in the capital having financial literacy.
The Great British Financial Literacy Test, developed by investment app Freetrade, showed the low pass rates were due to people’s lack of confidence around aspects of personal finance.
Overall, 88% of 2,000 respondents said they lack confidence with their money, and one third (32%) said this also led to a negative impact on their mental health.
The majority however struggled with investment, with 91% saying they lack confidence in the area.
Similarly, 90% admitted lack confidence in managing their retirement money, according to the study, while 88% of the UK also lacking confidence when it comes to ISAs.
The pass rates for questions about investment were the second lowest at 44%. This was followed by savings at 34% and ISAs at 32%.
"The frustrating thing about the lack of confidence around ISAs is just how helpful, accessible and easy to use ISAs can be," Lane added. "Chances are, if we’re unsure about the headline facts around ISAs, we’re not using them to help us as much as we could."
The study highlighted the difference in the way generations learn about personal finance, with Gen Z's more likely to learn about finances online than family.
Struggling to understand finance, 23% use Google as their first stop for learning about personal finance—the most popular answer among respondents. The second most common answer was social media with 16% saying they would get financial education from platforms like Instagram, TikTok or Facebook (FB).
"Basic concepts like compound interest might be ticked off in the national curriculum but setting us up to deal with that in the real world takes more than a textbook exercise," Lane said. "These results should be a wake-up call for the nation’s education system to equip young people well enough to put theory into practice."
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