How can government and business improve the UK’s financial literacy?

The level of financial literacy each of us have is largely governed by our individual characteristics, parental influence, and schooling,

For businesses, financial literacy brings employees with strong numeric skills, better prepared for the world of work and likely more productive. Our research found that financial literacy skills are highly transferable and can boost entrepreneurship as well.

For individuals, the ability to make informed decisions is a key determinant of lifelong financial outcomes, savings, income, borrowing and spending behaviours, as well as investment and wealth accumulation – ‘a core life skill’.

Financial behaviour can be hard to influence because of a life-long process of ‘financial socialisation’ by the society that people live in. It is a complex ‘soup’ requiring targeted intervention and innovation. For example, children’s attitudes to money are already well developed by the age of seven.

Financial literacy in the UK falls short of rates observed elsewhere in the Organisation for Economic Co-operation and Development (OECD), ranking it 15^th of 29 OECD countries with 67% of adults being assessed as financially literate. A recent study into the effect of financial education from a young age on adulthood is amongst the evidence illustrating the benefits of addressing financial literacy. It found that prioritising financial education could add nearly £7 billion to the UK economy each year.

Our work also pointed to the importance of looking beyond financial education in schools and harnessing the private sector - in developing innovative financial solutions, but also in creating behavioural solutions that ‘nudge’ and automate positive behaviours to build good financial habits.

We looked at the role of business in supporting financial literacy: when looking across other countries, we found that policy on financial literacy is more effective when built  in collaboration with the private sector. The private sector can play their part in addressing financial illiteracy through innovation and the development of new products and services. Business can also work in collaboration with the government to help equip individuals with tools to assess options, or help parents teach children key money habits.

There is an emerging market for financial products which allow parents to develop positive financial behaviours with their children. Practical tools which help them earn, budget, save, and spend money. Such solutions upskill and empower parents to actively develop positive financial behaviours at home, building on financial education in the classroom.

Our report identified three actions the government and other stakeholders can take to improve financial literacy in the UK:

1. Develop a collaborative national strategy for financial literacy which works with industry and other private sector partners. Adopting a collaborative approach with the private sector to improve and promote financial literacy – in particular, for young people - allows the government to leverage policy and draw on private sector expertise to achieve this objective. It means the private sector, in collaboration with government and regulators, can work to simplify consumer decisions in relation to financial products and services and increase consumer protection from financial scams.
2. Introduce financial management and financial literacy in the UK from primary school age. A comprehensive curriculum developed with input from across England, Scotland, Wales and Northern Ireland will ensure children receive similar education from primary age. This will provide help to ensure financial education feeds into children’s attitudes to money during their formative years
3. Provide practical learning tools for children and parents Practical learning tools for parents will mean that those who have not received financial education from an early age are still able to build good financial management skills. For those who have received financial education, including children, these tools can help to reinforce earlier childhood education. For parents/carers, this will facilitate the passing of financial literacy to future generations

CBI economics conducted a literature review, research & analysis and international benchmarking in support of the research commissioned by GoHenry and Wison Wright – read our Paving the way to financial wellbeing report.

At CBI Economics we have a team of dedicated economists with wide ranging experience of evidencing policy recommendations. We can help you calculate the fiscal costs of your policy ideas, demonstrate their economic impact, and even help you to best articulate the issues you face through economic evidence.

If you have a project or idea in mind that you would like to discuss further, get in touch with the CBI Economics team.