By Dale Critchley, Policy Manager, Aviva
It means 40% of people are paying off debts, struggling to get credit or just don’t have as much money in their pocket as they could have had.
The research also found that almost two thirds of people wished they had managed their finances differently. I find this stat a bit more encouraging as it means there are a third of people out there who feel they’ve not really put a foot wrong when it comes to money. Or perhaps don’t know they have made mistakes.
And there is more good news, although with a significant caveat. The survey found that 78% of people think they are good or very good at managing their finances effectively. Not surprisingly, people rate themselves more highly as they get older; 73% of 18 to 24 year olds think they are good or very good with their money, rising to 87% of over 65s.
But here’s that caveat. When we questioned people a bit further on their ability to understand some common financial products and services there was a significant knowledge gap.
60% of people said they were not confident explaining tax allowances around personal pensions. I can understand that some people might find it difficult, but what this is telling us is that 60% of people admit they don’t understand one of the most important reasons to save into a pension over other savings products or investments they think they understand more.
The most compelling reason to join a workplace pension is of course the employer contributions. What I found really troubling is that over half of people we surveyed said they wouldn’t be confident explaining workplace pensions and employer contributions. After five years of auto-enrolment we shouldn’t be seeing statistics like this. Tax can be hard to explain. Employer contributions are not a difficult concept to grasp.
I suppose this shows how far we have to go with engagement. Inertia has delivered a great result in getting people enrolled but a lot of people don’t understand what they have, or worryingly its value, despite the communications sent to them or made available online.
I did wonder if this was a purely pensions based knowledge gap, given the proportion who claim to be good with money. But no, 45% of people weren’t confident explaining mortgages and repayments and 30% said the same about credit cards and interest payments. These are financial services that impact on everyday life and like pensions they form the bedrock of being good with money.
The problem with all of this is of course that a lack of knowledge can lead to poor decisions.
There are an increasing number of employers who seem to recognise this issue and we are seeing significant interest in promoting financial well-being in the workplace. Employers are implementing benefit packages that include a range of savings and investment choices, allowing employees to select from products that have been subject to due diligence, with access to financial education to encourage good decisions.
The Cridland report into the State Pension recognised the role of financial education in the workplace with “a Mid Life MOT” designed to help people plan for later life.
Financial education doesn’t just benefit employees - better understanding helps employees understand the value of the benefits provided by employers. It really can be a win win. We should all “start spreading the news”!
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