Revealed: Britain's Lack of Financial Know-How

15th June 2018

By Kurt Wood

Can’t remember your CRA from your ISA? We don’t blame you. The world of finance is filled with acronyms, calculations and all manner of details that you may not fully understand. To find out what people struggle with the most, we put the nation’s knowledge to the test with our financial know-how quiz. How did people do?

Not terribly well, we’re afraid. 2,000 people took our quiz though the average person scored just 36%. But have no fear – as ever we’re here to clear the air and give you all the info you need to stay on top of your money.

Let’s see where most people slipped up:

 

Jargon

Results showed that a third of people don’t know what APR stands for and 60% of people don’t know what AER stands for (Annual Equivalent Rate). These are important terms when applying for a loan or opening a savings account, as they refer to the interest being applied.

 

Credit Checks

When you apply for credit, your credit report is checked by one of the "big three" credit reference agencies. Only 7% of people quizzed knew the names of the agencies.

It’s also important to know what helps and what hurts your credit score. Consistently paying your bills on time and being on the electoral roll will raise your score. Missing payments and applying for several forms of credit in a short period of time will bring it down.

In our quiz, 46% of people thought that avoiding credit cards and loans would improve their credit score. You may think avoiding debt altogether will put you in good standing, but the reverse is true. Lenders want to see evidence that you can repay debt consistently, so avoiding forms of credit altogether will hurt you. It’s best to have a small, healthy amount of debt (such as paying off a credit card in full every month) which gives you a track record of paying bills. This will make you more likely to be approved for a larger loan or a mortgage, should you want one in the future.

 

Interest and Percentages

By far, interest and percentages were the most confusing aspect for people taking our quiz. When you see that something has 2% interest on it, you would be forgiven for thinking it’s just a drop in the ocean. But interest calculations are pretty complex formulas, and the total amount of interest you pay will depend on a number of factors, including the overall interest rate, how often interest is calculated, and your repayment structure.

That’s why it’s vital that, when you take out credit or a loan, you get a detailed breakdown of how much interest will be added and how much you’ll repay in total. Knowing this, you can better plan your long-term financial future.

Percentages also puzzled our respondents. 71% of them couldn’t work out how much they’d save if their rent changed by a certain percentage. With almost half of all English people aged 25-34 were renting their accommodation from a private landlord, this is troubling news.

We hope you find our jargon-busting graphics useful and keep them on hand the next time you find yourself flummoxed by financial terminology. We have a wealth of handy guides to help you understand everything from the differences between credit cards how you can switch your energy supplier.

 

What do you struggle to understand about finance? Let us know on Facebook, Twitter or Instagram and we’ll  help you get to the bottom of it.

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