Financial Literacy and Support for a Productive Workplace
In the UK, we have a dated education system that is struggling to adapt and improve the curriculum to fit the demands of modern society. The closest aspect of financial literacy taught in schools is mathematics. However, the maths learned at school falls far short of financial literacy.
Unfortunately, this means most of the population leaves the education system without any idea about financial products like mortgages, credit cards, and even how to calculate an Annual Percentage Rate (APR). By empowering those in the workplace to understand finance, it can have far-reaching positive impact on their lives.
Let’s discover financial literacy and support for a productive workplace in detail.
What is Financial Literacy?
On the simplest level, financial literacy is understanding how financial products work, how interest is calculated, and the risk management of debt and investments. People who have financial literacy are far more likely to succeed financially in life than those who don’t.
Being financially solvent brings a range of benefits to people, among them the ability to live comfortably within their financial means and enjoy a better quality of life.
There are many facets to financial literacy, but the most important aspects people need to know in their daily lives are:
- How interest rates are calculated,
- Common financial penalties applied to products,
- Introductory interest rates,
- How API is calculated and applied to products,
- When to borrow money and when to utilise existing savings.
What is the Impact of Poor Money Management?
There are three major impacts of poor money management or lack of financial literacy for people:
- More likely to have credit profile problems,
- Debt is more likely to be unmanageable,
- More likely to take risky financial products to try regaining a better financial footing.
All three of these problems can be terrible if people allow them to grow. For example, a bad mark on your credit profile can be remedied and you can improve your credit score over time, however if you have multiple negative marks on a credit score, it becomes more difficult to fix.
The single biggest issue people face with poor financial literacy is mental health. Stress, anxiety, and depression are all symptoms that appear when people experience financial difficulty.
How Common is Financial Literacy?
Contrary to popular belief, problems with financial literacy can affect anyone from all backgrounds and walks of life. It is unfortunately more prevalent in poorer communities, but the wealthy are not immune. In fact, the costliest financial mistakes are made by the wealthy as they have more money to leverage and lose.
In understanding this, it becomes easier to broach the subject and help others with financial literacy because there is no stigma attached to it.
Everyone will need to borrow money in their lifetimes, whether that be an overdraft or a mortgage, and helping others understand how borrowing works will allow them to make financial decisions with confidence.
Where Can People Get Help with Finances?
Alongside financial literacy courses that are available from a variety of services, it is important to know there are services available to those having trouble.
For mental health services there are now a range of NHS projects including outreach programs available for people who are struggling with anxiety or depression. The first port of call would be to contact a GP. There are also private therapy and counselling services available including those operated by charities.
Speaking of charities, for financial help, the leading charity in the UK is StepChange. This is a debt management and solutions charity who will compile monthly budgets, explain debts, and even create debt management agreements with creditors to get debt repaid and help people get control of the finances.
Savings are not popular in the UK and for decades the government has been trying to encourage people to save more money. The problem is, savings have been largely uncompetitive due to paltry interest rates applied by financial institutions and for many years, people have seen little benefit in saving.
This has been a failure of successive governments and the Bank of England, both of which have encouraged low-cost borrowing at the expense of respectable savings rates. Because the Bank of England base rate has now been raised, savings are more generous, however there is still a lot of work to do to encourage savers.
Irrespective of returns, wherever possible it is best to save money, if only to avoid borrowing money in the future.
Borrowing is extremely common and for the same reason many have been put off by savings, people have been borrowing – low interest rates. This period of low interest rates is coming to an end and borrowing is becoming far more expensive.
Regardless of the interest rates being low or high, it is always noteworthy that for the most part, the cost of borrowing is always more than the amount you will get from saving. In this respect it is nearly always best to use existing savings than borrow money.
Credit Score Problems
The low cost of borrowing and the lack of savings have created a population used to living in a financial deficit and credit score problems are increasing.
Poor financial literacy exacerbates these problems, and some people will try to borrow more money to cover other debts. This can lead to debt spirals where the debt level increases and the ability to keep up with payments diminishes.
Credit score problems can cause significant issues in themselves. As mentioned, we will all need to borrow money at some point and if a credit score is low, the amount people can borrow is reduced and the cost of borrowing increases.
Bad Credit Borrowing
There is now a bad credit comparison website, the first of its kind launched in the UK to help borrowers achieve better value for money.
The website compiles a range of lenders and empowers borrowers to check and compare loan terms and interest rates, selecting the loan best suited to them. This provides a crucial financial lifeline to those who need to borrow money and have bad credit histories.