A recent FSA study has found figures sugggesting that, amongst other things, half a million households are in “serious financial difficulty”, and 70% of consumers have no savings in place to see them through a sudden loss of income.
Here are some more figures from the report:
- 70% of people have made no provision to face a drop in income â€“ although 28% had experienced such a drop in the last 3 years.
- 81% of respondents under retirement age think that a state pension will not provide them with the standard of living they hoped for in retirement â€“ yet 37% of them have not made any additional provision.
- 39% agree “I tend to live for today and let tomorrow take care of itself”
- 1% (0.5 million people) say they have real financial problems and have fallen behind with many bills and credit commitments. 2% (1 million) have fallen behind with some payments.
- 6% (3 million people or 2 million households) say it is a constant struggle to keep up with commitments.
- 79% do not shop around or talk to a financial adviser before buying a product – relying on product information or non-independent advice
- only 48% of car insurance policyholders have taken out a different policy (or considered switching) in the last five years
- 40% of people who own an equity ISA are not aware that its value would fluctuate with stock market performance
Certainly some eye-opening figures there, I found it especially surprising that nearly 80% of people do not shop around before buying financial products, something that is being advocated more and more. Perhaps this reflects the fact that people rely on their banks and building societies for what they think are the best deals, and are sceptical about looking for products from less well-known brokers or IFAs.
Also, having just gone through another “ISA campaign”, which saw a big increase in the amount invested in ISAs from the last few years, it seems incomprehensible that 40% of those buying equity ISAs didn’t realise their money was invested in the stock market.
The report has also highlighted the extent of a problem that we’re probably all already aware of; that the 18-40 age group suffers from a severe lack of knowledge when it comes to financial products.
Increasing the financial skills of the UK’s 18-40 year olds is essential if they are to meet the greater demands placed on them and avoid problems in the future… There is an urgent need to help the young. The ability to manage money grows with age and experience. But rapidly changing economic and social trends mean that today’s 18â€“40 year olds are faced with greater challenges than were faced by their parents. They have greater access to credit and are becoming consumers at an earlier age. On top of that, the costs of higher education and of retirement are being increasingly borne by individuals rather than the state or employers. This combination of pressures means that the cost of not having the necessary skills to make sound financial decisions is becoming increasingly significant.
The FSA has outlined a programme for dealing with this problem, which will happen over the next 5 years:
- 4 million employees will receive a financial information pack and be offered access to seminars.
- Teachers will be provided with the support and resource they need to give them the confidence and competence to teach good personal finance education in schools, and there will be a new “functional mathematics component” of GCSE maths from 2008.
- 2 million students in higher education will have access to “Money Doctor” schemes to help students take control of their money before they run into difficulties.
- Around 1 million young people not in education, employment or training will be reached through statutory and voluntary agencies whose front-line youth services staff have taken-up short practical training courses in the basics of financial capability.
- 1.5 million new and prospective parents will receive a ‘Money Box’ pack which will serve as a comprehensive source of financial information.
- A radical overhaul of FSA material for consumers (e.g. web site and publications) to ensure the right information is available for the right people, as well as a “more strategic approach to the marketing and distribution of tools and resources to help build financial capability”.