Can YOU pass a financial literacy test that almost half of adults fail…?

New research shows that almost half of people fail a financial literacy test that asks three key questions about interest rates, inflation and risk.

A survey of 3,000 adults, weighted to be representative of the country, found that 20 percent got no answers right and another 24 percent got only one answer correct.

According to research by investment company Abrdn, approximately 30 percent passed the test by answering two questions correctly and 26 percent passed the test.

According to the agency, the bankruptcy rate is highest among young people and women, with the 44 percent who have poor financial literacy, equivalent to 23.3 million adults in the UK.

Abrdn analysed the finances of thousands of people who took the test, finding that people with good financial literacy, who got at least two questions right, had an average pension of £20,000 more and were more likely to receive a pension at all.

And those with high scores were nearly twice as likely to hold investments as those with poor results: 39 percent versus 21 percent.

Those who didn’t get any questions right were about twice as likely to have low risk tolerance than those with the highest scores: 62 percent versus 34 percent.

People who are better off – and these are mainly men and older people – are more likely to learn financial literacy.

People with a lot of money now have sufficient financial security to be able to invest and thus take higher risks.

The rule of thumb for whether you can afford to invest beyond your retirement is that you should be debt free (other than a mortgage) and have an emergency fund worth three to six months’ salary.

Abrdn acknowledged this in the study, saying that there are likely several interrelated factors influencing the findings, including low salary and socioeconomic background. These factors play a role, for example, in whether people with low or high financial literacy have a pension and how much that pension is.

Who scores high on financial literacy?

Research by Abrdn found that men generally had better financial literacy than women, with 69 percent getting two or all of the answers to the above questions correct, compared to 44 percent.

Of the respondents with low financial literacy, meaning they had one or no correct answers, 31 percent were male and 56 percent were female.

Of those who got nothing right, 13 percent were male and 26 percent were female.

In terms of age, the distribution among people with good financial literacy was as follows: 18-34, 44 percent; 35-54, 54 percent; 55+, 67 percent.

Among people with low financial literacy, this was: 18-34 years: 56 percent; 35-54 years: 46 percent; 55+ years: 33 percent.

For those who had no correct answers, the figures were: 18-34, 26 percent; 35-54, 22 percent; 55+, 14 percent.

Meanwhile, Abrdn also conducted a survey of 3,000 adults, weighted to be nationally representative, about their savings and investments and their views on the economy and the stock market.

Criteria were assessed such as their product knowledge, the likelihood that they would grow their assets, their ability to manage savings and investments, their risk appetite and their confidence in their own financial situation.

The overall results were: propensity to save 53/100; propensity to invest 37/100; economic outlook 46/100; and propensity to save and invest (combination of all three) 45/100.

According to Abrdn, men had much higher scores than women, with the average propensity to save and invest being 51/100 versus 41/100.

Age made little difference, but younger people are more likely to invest. Londoners scored highest at 51/100, and Scots scored 45/100.

People in Wales scored 43/100, Northern Ireland 44/100, Yorkshire and Humberside 43/100 and the South West 44/100.

How to Improve Financial Literacy

To tackle the financial literacy gap, Abrdn has called on the government to extend compulsory financial education to primary schools and sixth forms in England, and to consider introducing a new GCSE and sixth form qualification that focuses on financial skills.

It is also proposed that personal finance be integrated into relevant subjects such as mathematics, economics, citizenship and food technology, highlighting that Scotland already does this in the school curriculum.

The initiative is part of the ‘The Savings Ladder: A Manifesto to Get Britain Investing’ campaign, which previously looked at people’s preference for property over pensions as a long-term investment.

Recommendations include simplifying ISAs, abolishing stamp duty on UK stocks and shares and investment trusts, doubling minimum pension contributions and improving financial education.

DIY INVESTMENT PLATFORMS

AJ-Bel

AJ-Bel

Easy investing and ready-made portfolios

Hargreaves Lansdown

Hargreaves Lansdown

Free Fund Trading and Investment Ideas

interactive investor

interactive investor

Fixed investment costs from £4.99 per month

eToro

eToro

Stock Investing: 30+ Million Community

Trading 212

Trading 212

Free stock trading and no account fees

Affiliate links: If you purchase a product, This is Money may earn a commission. These deals are chosen by our editorial team because we think they are worth highlighting. This does not affect our editorial independence.

Compare the best investment account for you