abrdn: More than 23 million adults have low financial literacy

Amid a looming pension crisis and cost-of-living pressures, 64% of UK adults are being put off investing in the next six months due to low risk tolerance, lack of confidence in the UK stock market and low engagement with investment products, according to abrdn.

The findings come from the global investment firm’s new abrdn Savings Ladder Index. The index will track levels and approaches to savings and investments over time among the public. It will also measure the likelihood of people starting to save and invest more through a ‘Propensity to Save and Invest’ score.

Crucially, the index will also regularly measure the financial literacy of UK adults for the first time, to the best of ABRDN’s knowledge, which ABRDN believes is vital if financial education is to be funded at scale by government. The OECD collects and publishes data on adult financial literacy levels in 39 countries, and it is striking that the UK does not participate.

With the permission of the Global Financial Literacy Excellence Centre, abrdn has asked its ‘Big 3’ questions on financial literacy, which are used as an international benchmark for comparison. The research suggests that 44% of UK adults have low financial literacy, extrapolating to 23.3 million UK adults.

The abrdn Savings Index was conducted by Opinium Research among a nationally representative sample of 3,000 UK adults.

The index found that UK adults have:

• An average Propensity to Save score of 53/100

Measures understanding of savings products, likelihood of increasing savings in the next six months, likelihood of taking out new cash savings products in the next six months, and confidence in taking out and managing savings products.

• An average Propensity to Invest score of 37/100

Measures understanding of the investment product, likelihood of increasing investment in the next six months, likelihood of purchasing new investment products in the next six months, confidence in purchasing and managing investment products, how much long-term investing is a priority, enjoyment of reading about investments, and risk tolerance.

• An average score of 46/100 on the Economic Outlook

It measures confidence in the UK economy, confidence in the UK stock market and how confident they are about their personal financial situation.

• An overall “Propensity to Save and Invest” score of 45/100.

This was calculated by combining people’s propensity to save, their propensity to invest and their economic prospects.

Respondents with a strong propensity to save and invest were given a score of 100/100. At the other end of the scale, where respondents were seen as unlikely to save and invest, respondents were given a score of 0/100. The economic outlook pillar also gave 100/100 for a positive outlook and 0/100 for a negative one.

abrdn’s Savings Ladder manifesto was released earlier this year, highlighting the nation’s continued enthusiasm for homeownership. In it, abrdn proposed that building a similar momentum behind saving and investing could transform our future financial health. Looking ahead, the company will measure people’s propensity to save and invest every six months.

Sarah Moodyabrdn’s director of corporate affairs and sustainability, said: “For decades, people in the UK have been encouraged to put property at the heart of their financial lives. If we are to avoid a looming retirement crisis, we now need to generate the same momentum behind saving and investing.

“Any future government must urgently consider policy interventions – including doubling minimum pension contributions and scrapping stamp duty on UK shares and investment funds – to kick-start the change in habits the country will need in the years ahead.

“Better financial education is also vital if we are to encourage a culture of long-term investment, with our research suggesting that poor financial literacy is harming people’s long-term financial health.”

In its Savings Ladder Manifesto, abrdn made several policy recommendations on how to address the savings and investment crisis and encourage a “Savings Ladder” culture in the UK. These included:

• Simplifying the ISA system
• Elimination of stamp duty on UK shares and UK-domiciled investment funds
• Doubling of minimum pension contributions to 16%
• Introducing a reimagining of financial education

To improve financial literacy levels, ABRDN called on the government to:

• Extend mandatory financial education to primary and secondary schools in England to ensure fewer young people miss out on financial literacy.
• Integrate finance into relatable subjects, from maths, economics, citizenship and food technology. Scotland already integrates personal finance across the curriculum, and ABRDN would like to see consistency across all four nations.
• Discuss a new qualification for GCSE and secondary school that focuses on financial skills.

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