Brits have been using extra spare time during lockdown to improve their personal finance knowledge, but still lack basic understanding of financial products and services to make informed decisions, according to a survey by Hitachi Capital UK PLC.
More than a third (38%) of Brits used lockdown to swot up on their financial literacy, with a quarter (27%) claiming that their understanding of personal finance products and services has improved.
The research reveals a growing disparity between those that want to learn and those that mistakenly believe their knowledge is sufficient, with many consumers lacking basic financial literacy when borrowing money.
Most Brits (69%) claim they are confident in their knowledge of financial products and services, yet when surveyed, the majority do not understand that payment holidays can increase the overall cost of a personal loan (62%).
Misconceptions around an annual percentage rate (APR) are also widespread with 63% incorrectly believing the APR on a personal loan is always higher when borrowing larger sums of money; over half of Brits also wrongly assume that representative APR on a personal loan is the same for anybody taking out an identical amount with the same provider (56%).
Furthermore, almost half are unaware that applying for multiple credit at the same time could have a detrimental impact on their credit score and reduce their chances of acceptance (49%).
There is also confusion about a common form of car finance, as more than half of Brits (58%) wrongly assume that a vehicle on a contract hire plan belongs to the person taking out the agreement.
The biggest improvements in understanding are in London (33%), Belfast (32%) and Nottingham (32%), while in stark contrast a staggering 90% of those in Sheffield and 82% in Leeds saw no progress in financial literacy from lockdown learning.
What’s more, data suggests that a third of us (33%) do not take time to fully understand the terms of a financial product before signing a personal finance agreement. Those in the North West are least likely to do their homework, with one in 10 (10%) doing no due diligence before signing on the dotted line.
Younger generations lead the charge in getting to grips with their finance during lockdown, with half of Gen Zs and Millennials (51%) using the time to get a better handle on their finances. Over two thirds (42%) of 18-34 year olds also claim to have gained better understanding as a result, compared to less than a fifth (17%) of over 55s.
The Hitachi Capital UK survey also found:
- Londoners led the way in lockdown learning, with 49% spending the extra time at home to get a better handle on their own financial situation. The highest number recorded in the whole of the UK.
- Despite that extra time Londoners still have a long way to go. They scored badly for misunderstanding how the terms of APR work. With 27% wrongly believing APR on loans always increases when borrowing more, compared to 16% of those in the South West and 14% in Wales the region which performed the best.
- While over 55s are the most confident age group (76% are confident) nearly half (45%) were unsure about whether the APR on a personal loan is always higher if you borrow more money and 44% were unsure about the repayment terms on payment holidays.
Vincent Reboul, Managing Director of Hitachi Capital Consumer Finance said: “It’s positive that so many people have used time during the pandemic to become financially savvier and encouraging that younger age groups now have a better understanding of consumer finance products.
“But as the survey highlighted, misplaced confidence can lead to common misconceptions about how products work, which is why it’s important to take the time to understand the implications and ask questions. It’s also paramount that financial services providers continue to improve communications on the products and services they offer.”
The Hitachi Capital UK survey revealed stark contrasts around the country when answering the question “Has the Lockdown improved my understanding of personal finance products and services.”