For far too many people, including those up the wealth scale, their understanding of financial products is not where it should be, the author of this article argues.

Financial literacy and awareness is a cause for concern, it appears, across the wealth spectrum, although there can be subtle differences. While there is so much focus on inflation, borrowing costs, deposit rates and other matters, HNW families still need to understand how financial products work. In the following article, PK Patel, head of wealth management, Handelsbanken Wealth & Asset Management, takes a brief walk around the topic. The editors of this news service are pleased to share these comments and invite replies. The usual editorial caveats and disclaimers apply. Jump into the conversation! Email tom.burroughes@wealthbriefing.com

Information about the financial services industry is very accessible nowadays, yet the understanding of financial products themselves remains obscure for many people.

Despite a vast array of news sites, sector commentators, social media platforms, industry data and a range of other information sources, confusion and doubt about financial products and the wider financial world are rife throughout the UK population. Many people lack an understanding of even the basic aspects of important financial products, including how they work, how they should be judged, and the language and terminology that are used to promote them.

This, in turn, makes many apprehensive about making what should be independent, appropriate and important decisions about their finances.

A poor education at school in terms of managing money 
According to our 2023 Wealth Survey, problems with financial literacy start early in life. More than half of respondents (54 per cent) to our study said that in their opinion, they’d had a poor education at school in terms of managing money. Down the line, such a limited confidence and knowledge has had a significant impact on participation in financial markets, accumulation of assets, and overall wealth. 

Important financial products are not understood well enough by significant percentages of the population. More than half (53 per cent) of the people we interviewed stated that they have a “limited understanding” of investments; 46 per cent cited a lack of understanding of pensions; and just over a third (36 per cent) struggled to understand mortgages.

This issue is also shown in the reluctance to offer financial advice to family and friends, with over a quarter (28 per cent) of people stating that they would feel unconfident in doing so.

A dangerous lack of information
This lack of financial education and confidence is exacerbated by a lack of well-publicised information about many common financial products. 

For instance, to qualify for a state pension, most people in the UK will need to have met a given threshold of National Insurance contributions for at least 10 years. Those working part time, or taking career breaks, may find that – in some years – this threshold is not met.

A scheme allowing people to fill in those gaps in their National Insurance contributions between 2006 to 2016 by making contributions is now ending. This scheme was not very well promoted by the government and there has been a distinct lack of public advice on the matter. 

Whilst this related to state pensions, rather than private retirement savings, it adds to a sense of distrust around the pensions market. This is hardly helpful when it comes to building the UK population’s knowledge and confidence in financial products.
 
Encouraging our children to be better prepared
On a more positive note, our research also showed that there are signs to be optimistic for future generations. Half (50 per cent) of our respondents encourage their children to learn about managing money, for instance, so that they are better prepared for the future. This figure increases among wealthier parts of the population, with 61 per cent of those holding £100,000 ($122,173) or more in assets stating that they were likely to encourage financial education in their children.

If you have a financial advisor, one way of encouraging financial literacy among children is bringing them with you to meetings and discussions, where appropriate. This should help to familiarise them with the environment as well as the typical nature of these types of conversations. You can, of course, speak to them yourself, and educate them on some of the most important risks and opportunities offered by financial products. 

Respected and professional learning resources
Beyond encouraging children to learn about finances from an early age, how else can we improve understanding?

One way is through using respected and professional learning resources and events to their full potential. There are numerous resources available from websites to podcasts which can be used to strengthen your knowledge of the financial world.

Finally, taking the right advice is also important. Speaking with a financial advisor is crucial, and it is equally essential for that financial advisor to be someone you can trust and who encourages you to make your own financial decisions with honest guidance.