Year after year, studies have shown that financial illiteracy is a big problem, not only in the UK but the rest of the world as well. The UK isn’t as bad off as some countries, but we’ve no cause to be complacent.
The effects of financial illiteracy are far reaching and can be devastating, both in the developed world and in developing countries. Income inequality, to name but one problem, is growing worse, and if we are ever to begin reversing the trend it is crucial that we increase our individual and collective financial literacy.
More people are realising that “the fight is fixed”
In his 1988 tune “Everybody Knows”, Leonard Cohen wrote that the fight is fixed: that the poor remain poor while the rich keep getting richer. This is even truer now than it was in 1988; in fact the issue is front and center in the US presidential election – but again, we in the UK have no basis for complacency.
Though jobs are on the increase here, many of them are poorly paid, whilst CEO pay continues to spiral upward. In December 2015 the Office for National Statistics (ONS) issued a report spotlighting the growing wealth gap in Britain. The ONS’s survey of the country’s assets for 2012-2014 indicate that the richest 10% of Britons are now in possession of just under 45% – nearly half – of the nation’s private wealth (including property and shares). Indeed the top 10% have enjoyed a 21% increase in their wealth since the previous analysis (2010-12). Compare that to a mere 7% rise for the bottom half. And there’s more gloomy news; the Fabian Society and Landman Economics have projected that there will be significantly wider inequality in the UK by 2030.
Is education the answer? It’s certainly a major piece of the puzzle. Few experts would argue against the benefits of education, and many maintain that lifelong education – including financial learning – can have a positive impact on poverty reduction, whether in a Third World country or right here at home. In 2008 the Inquiry into the Future for Lifelong Learning (IFLL) issued a Public Value paper entitled “The Impact of Lifelong Learning on Poverty Reduction”. Written by Ricardo Sabates of the Institute of Education in London, the paper explored the role of financial literacy as a potential tool for addressing poverty in the UK and worldwide. Though admitting there is a dearth of studies investigating the net impact of lifelong learning on poverty reduction in the UK, Professor Sabates argued that nevertheless there is considerable evidence that adequate financial education can improve the lot of low income and disadvantaged families.
Financial literacy won’t solve everything, but it still matters
The UK has done more than some developed countries to advance the cause of financial literacy; amongst other things it has a dedicated body to promote it, the Money Advice Service. As well, numerous other debt charities are working to advance the cause, e.g. Citizens Advice Bureau and the Personal Finance Education Group. Combine these with the efforts by schools to bring financial education into the classrooms even at the primary school level, and it’s clear that UK residents have many resources to help us learn to better manage our money. And it is more important than ever that we make every effort to do just that.
This isn’t to overstate the power of individual financial literacy, which will not solve all of the world’s ills; it will not even solve all of its economic ills. There remain many factors beyond the control of ordinary people. Accordingly it is utter folly to insinuate, as some politicians have tried in recent years to do, that the fiscal irresponsibility of individuals was largely to blame for the financial crisis from which the world is still recovering. The fight is still fixed, and the growing problem of income inequality will inevitably come to a boiling point sooner or later. And even the aforementioned IFLL study noted that lifelong learning is but one part of a multifaceted approach to reducing poverty and will only work in interaction with other policies.
Nevertheless we all owe it to ourselves and our families to become as financially literate as possible, for by doing so we will, at the very least, be prepared to take control of our personal finances. This will benefit us in many ways. We will be able to look beyond the adverts and aggressive promotions and find the best deals on everything from bank accounts to investments, from loans to credit cards. We’ll be better armed against scammers who would take gladly our money and run. In short we will be better equipped to create the best outcome possible for ourselves and those we love, no matter which way the political and economic winds blow.
But the effect of financial literacy goes beyond our personal finances. We might not be able to save the world single handedly, but arguably if we know how money works and have some basic education in economics, we’ll also be better equipped to fight for a more just system for everybody. Now more than ever, knowledge is power.