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You’ve heard it from every disgruntled teenager who is trying to complete their maths homework: ‘why do we learn things like calculus when we don’t need it in life? Why can’t we learn useful things, like how to open a bank account?’ Turns out, they may have had a point all this time, as new evidence shows that between 20 and 30% of UK adults are now considered ‘financially illiterate’. What does this mean for business and what does this mean for marketing?
Financial literacy is a hard term to pin down, and there’s no one definition. At a glance, it’s simply the ability to manage your finances, but that’s a bit vague – you can manage your finances in many ways, not all of them well. It’s easier to look at what it means to be financially illiterate, which, in the most basic terms, means not knowing the potential value of money – a failure to understand that it can actually grow. Financially illiterate people can be identified a few shared behaviours such as impulse spending and a lack of long-term financial goals.
In the fast-paced age of the internet, we have become used to a culture of instant gratification, dwindling attention spans and ever-progressing technology. It is unsurprising, then, that for a long time, people have been aware of a decrease in financial aptitude and calling for change. Now, research by OECD, which asseses the financial awareness of 15-year olds from across the globe, gives us more insight: Of those assessed:
It may be easy to think that these results only apply to the current young generation: millennials who grew up with technology and have never had to do anything themselves. However, research has long shown that the UK lags significantly behind its international neighbours when it comes to mathematics, with a culture that fosters the attitude of ‘I’m just not good with numbers’ and bad experiences with maths teachers bubbling under the surface of many young Britons’ learning experiences. Young people from Japan, Singapore and South Korea, meanwhile, all rank within the top ten in terms of mathematic abilities and the number of students continuing to study the subject after the age of 16.
In addition, with the new technology that makes financing and banking allegedly easier, the entire world has become lazier when it comes to money. However, it seems countries that have recently expected some kind of economic difficulty, such as inflation, have become more financially literate, presumably because they’ve been forced to. Will we see Brits similarly educating themselves in the wake of what Brexit may mean for our finances?
In the short-term, the UKs lack of financial literacy could actually be a good thing for some marketers. For example, financially illiterate people will often buy ‘wants’ and things that they feel they ‘deserve’, rather than ‘needs’. This could be good news for those offering ‘luxury’ or experiential items – your target market may be more willing to part ways with their cash.
This is not such great news in the long-run, though, for anyone trying to market a product that requires a long-term investment. It appears that if we carry on at this rate, many people will have very small retirement funds and the ‘grey pound’, which occupies a huge proportion of the market, will be smaller in years to come.
Ever heard the saying: ‘an expert is anyone who knows more than you do’? Well, in this case, if you’re a level one on OECD’s financial literacy scale, you’re considered an expert by the illiterate 23% of the country. More positive news is that research shows that people like learning from perceived experts – they are more receptive to learning than to being ‘marketed to’. For instance, research shows that customers are unlikely to switch banks if their current one offered some kind of advice.
Though the idea of a financially illiterate Britain may seem to give cause for concern, the situation is changing and marketers and businesses should use consumer knowledge gaps to their advantage.