 Summing up ( 450kb) - Bridging the financial literacy divide
Executive summary
1.There is a general consensus that the United Kingdom faces a problem of financial literacy. Academic reports, government initiatives, private and voluntary sector ventures have all acknowledged the need for consumers to be better educated and informed on financial matters.
2.The experience of Citizens Advice Bureaux (CABx) Service supports this need for improved financial literacy. CAB clients have seen dramatic changes in the financial services market over the past twenty-five years. From teenage years through to deathbed, people now have a bewildering number of financial choices to make and responsibilities to exercise if they are to benefit fully from these changes. Financial literacy is no longer a desirable trait that consumers should be encouraged in. It is an essential requirement to play an informed role as a consumer in today’s 21st century market.
3.Recent years have seen a variety of initiatives to improve financial literacy. Government has been very active, particularly the Department of Education and Skills. The Financial Services Authority has also fronted or supported a wide range of activities. The introduction of financial education within the National Curriculum has led to the establishment of a bank of information and resources for teachers of young people. In October 2001 the Department for Trade and Industry launched a major initiative to help consumers become more confident (Confident Consumers).
4.Many CABx have also started working to promote financial literacy. As of September 2001, over sixty CABx were engaged in specific projects to improve the financial literacy of individuals and groups within their community. Appendix 1 of this report summarises those initiatives.
5.CAB evidence demonstrates just how important it is to maintain this drive to improve financial literacy. Our evidence shows how a financially illiterate consumer:
- finds it difficult to identify the financial service or product that best meets their current and future needs, lifestyle, and aspirations;
- falls victim to abusive practices from financial service companies and their agents;
- responds to financial difficulties in a way that results in even greater problems;
- is unconfident and unsure about how best to access and evaluate independent financial advice;
- is unable to take full advantage of the payments available within the tax and benefits systems to ‘make work pay’ and support those unable to work.
6.Much of the work undertaken to date has emphasised the link between inadequate education, low income, and consequent poor financial literacy. The debate has therefore tended to concentrate on the needs of poorly educated, low-income groups and the interaction between social exclusion and financial literacy.
7.This report argues that the problem of financial literacy encompasses a wider range of issues than simply basic skills. Consumers require additional skills, information, and access to impartial advice if they are to be informed and confident participants in the wide ranging UK personal finance sector.
8.The report also argues that the financial literacy target is continually moving. Consumers who are financially literate today may not be so tomorrow.
9.The recommendations made by the CAB Service fall into three areas:
- Improvements in consumer policy and regulation;
- Improvements in the provision of consumer information and advice;
- Identification of best practice in the delivery of local initiatives on financial literacy.
10.The report’s main recommendation is a call for a national strategy to join up and co-ordinate the initiatives to improve financial literacy. This strategy should straddle the work of government and the public, private, and voluntary sectors; identify and promote best practice; ensure good coverage and sustainable initiatives; and promote an approach to improving financial literacy which is not confined to consumers with basic skills or debts.
11.To complement the national strategy, the report recommends the ‘financial literacy proofing’ of all government policy relating to consumer and financial services, welfare benefits and tax credits, and administration of personal taxation. The financial literacy implications of all new policy should be identified. The implementation of the policy should then explicitly address the need to ensure that consumers have sufficient knowledge and skills to take best advantage of new products and services and responsibilities.
12.The report also discusses the need for better access to genuinely impartial and trustworthy financial and consumer advice.
13.A number of recommendations are made for specific changes in practice and regulation in the financial services industry covering, amongst others, consumer credit providers, insurance companies, and banking services. A list of all recommendations is provided in appendix 2.
Social Policy contact: Peter Tutton Social.policy@citizensadvice.org.uk
Summing up ( 450kb) - Bridging the financial literacy divide
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