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Improving understanding of personal finance

The need for greater understanding of personal finance among consumers is at the centre of many ongoing initiatives in the financial services industry. Among the best known is the National Strategy for Financial Capability run by the FSA and the work undertaken by pfeg (personal finance education group) that helps teachers in schools to develop financial capability among young people.

With debt playing a much greater role in peoples’ lives the need to understand budgeting and the relationship between assets and liabilities is essential.

We have been involved in producing reports in this area in recent years, most recently the Mintel report in 2004 'Consumers understanding of financial information’ that highlighted large gaps in consumers’ knowledge of financial services products.

One finding that our Financial Activity Survey highlights is the strong correlation between education attainment and financial activity. This suggests that with much greater emphasis on financial education in schools, in the longer term consumers will be far more financially proficient.

In January 2005 two statements were added to the Financial Activity survey and 1,000 consumers asked whether they agreed with them. The first statement concerned knowledge of personal finance:

‘One of my New Years resolutions is to improve my understanding of personal finance’

Overall 29% of consumers agreed with the statement. Among different consumer segments, most agreement is found among younger people aged 16-29 (37%), particularly students (52%). Regionally the greatest interest in improving personal finance knowledge is in the North West (35%). People who are not active financially are the least interested in improving their understanding of personal finance (19%).

Intending borrowers are generally more interested in improving their knowledge of personal finance than savers / investors.

By main financial services provider customers of Nationwide (35%) agreed most with the statement and Barclays (24%) agreed least.

Personal Finance and reality TV shows

In recent years there has been an increase in the number of television shows covering aspects of personal finance.

We asked 1,000 consumers in January 2005 whether they agreed with the statement:

‘I would like to see more reality TV shows about personal finance’

Overall 19% of consumers agreed with the statement with greatest interest among housewives (30%). Regionally the most interest is in London (26%). People who are not active financially are least likely to be interested (13%).

Intending investors in shares and bonds show the greatest interest together with car buyers (31%).