As mortgages go up, Britons’ inability to do maths is putting them in financial peril
Brits who are bad at maths are losing around £2,850 every year – a figure which will only be exacerbated by the cost-of-living crisis and rising mortgage rates, writes Ludovic Subran.
Britain is facing its worst cost-of-living crisis in recent memory and with inflation spiralling, interest rates have reached their highest level since 2008. Tomorrow Brits will learn whether the Bank of England will raise rates for the 14th time in a row and with people across the country struggling with the rising cost of mortgages, credit and bank loans, the decision will have ramifications for households in all corners of the UK.
But while the Bank of England struggles to bring prices down, a lack of financial literacy is costing the average UK household around £2,850 every year, according to Allianz research. More than a quarter of Brits exhibit only “low financial literacy” and lack the skills to make sound financial
decisions. Over a 10 year period, this lack of financial knowledge and skills can amount to £40,647 compared to those with the financial basics down pat.
Striking gender disparities also exist within the UK, with more women found to exhibit low financial literacy than men (35 per cent of women versus 17 per cent of men). In addition, women were more likely to answer “don’t know” to one or more of the financial literacy quiz questions, which suggests low faith in their financial knowledge and decision-making. Finally, there is a clear generational divide: A higher concentration of high financial literacy can be found amongst the older generations (Baby Boomers: 26 per cent) compared to the rest (average 16 per cent), and in particular compared to the younger generations of Gen-Z (7 per cent) and Millennials (9 per cent).
The high number of people lacking basic financial knowledge and skills is alarming. Especially since the investment environment is likely to become even more difficult in the future; increased inflation and volatile markets speak clearly here. In this respect, the costs of financial illiteracy – which were already substantial in the past, as our calculations show – are likely to rise further.
From a young age, children need to be taught how to apply maths to the everyday financial problems they will navigate later in life. But this is about more than just mathematics. Multidisciplinary research on financial literacy from the Linköping University in Sweden suggests that a driving force behind becoming financially literate is not only numeracy, but the emotional response to mathematics. It is therefore important that effective financial literacy interventions decouple mathematics anxiety from the individual’s daily engagement in financial decisions. Boosting confidence in individuals is as important as – if not more than – numeracy skills. Any successful financial literacy intervention, particularly those catering to women and young people, should therefore start with confidence -building.
To draw a path for levelling the playing field for women in finance, we cannot ignore the structural inequalities that add another level of complexity to financial decisions: the pay gap and labour participation of women. Women are more likely to be paid less, less likely to end up in the industries with the most growth potential, and also tend to have child-raising responsibilities and shorter working lives. All of this impacts their finances.
The economy remains volatile and the cost-of-living is likely to remain high for a considerable amount of time, regardless of Thursday’s decision. In such an environment, informed financial decisions have naturally become incomparably more important as the spectre of losing money has become all too real.