Two thirds of UK consumers say personal finance doesn’t add up for them

Almost two thirds of consumers cannot answer basic questions about their finances correctly, according to a survey from PwC and YouGov.

Asked how much they would expect to pay for their mortgage if interest rates suddenly went up, only 37 per cent gave the right answer and only 31 per cent could identify what would happen to a personal loan. People on higher salaries showed a greater financial understanding, with those paid more than £70,000 twice as likely to respond correctly as those paid under £20,000.

The survey, which interviewed more than 2,000 people about personal finances, found “no sign of improvement in financial literacy,” over the years, with little difference in correct response rates since the questions were asked in 2017. But 88 per cent of those surveyed said they felt “confident” or “very confident” in making financial decisions.

Bobby Seagull, a maths teacher and an ambassador for the National Numeracy charity, said: “Consumer inability to answer basic financial questions often stems from negative experiences of maths in school.”

He added: “It’s a tragedy that income bands can almost predict financial literacy, which means that those who are under the greatest financial strain are less able to evaluate the impact of their financial decisions.”

The survey also indicated that three million people, or 10 per cent of the working population, opted out of their pension schemes in the past year, a figure which rose to 17 per cent among those aged 18 to 24. The relevant question was included in the poll after a senior associate within PwC told colleagues that she had stopped paying into her pension, which surprised them.

Almost half of the respondents said they had curbed their heating use because of soaring energy prices, 43 per cent had cut their Christmas spending, 37 per cent had started shopping at cheaper grocers and a quarter had cancelled one or more of their subscription services.

Household debt has hit £2 trillion for the first time, almost the level of the nation’s GDP, which equates to £71,000 a household, with 80 per cent secured against property.

The total of unsecured debt grew by more than 7 per cent in the past year to a record high of more than £400 billion, equivalent to £14,300 per household, a rise of £900 each. Rising debt is concentrated in certain brackets, with young people 50 per cent more likely to have increased what they owe.

Although debt has been more affordable than before the global financial crisis because of lower interest rates and levels of unemployment, rising mortgage rates and job losses could “erode financial resilience,” the survey organisers said.

Lack of savings meant that a quarter of the population would need to borrow money to meet an unexpected £300 payment in the next year. Those renting their homes were at a greater risk of “financial fragility”, the survey in January found, with 17 per cent having missed a meal to pay a bill compared with 5 per cent of homeowners.

Simon Westcott, strategy and financial services lead at PwC UK, said: “There appears to be a disconnect between these confidence levels and consumers’ actual understanding of everyday financial products.”

Despite the shaky grasp of personal finance, when it comes to asking for guidance, only about a quarter of people said they turned to financial institutions such as banks, while another quarter did not ask for financial advice or information from anyone at all.

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Two thirds of UK consumers say personal finance doesn’t add up for them