A startling lack of trust in financial institutions among primary school children highlights Britain's growing financial literacy crisis, with new research revealing that tackling this issue could deliver a £16 billion annual boost to the UK economy.
The Trust Deficit Starts Young
When visiting primary schools with financial education charity City Pay it Forward, volunteers consistently discover that less than half of children trust major financial institutions like banks. In some classrooms, this figure drops to just one-third of students.
Marianna Hunt, associate director at Fidelity International and special adviser at the charity, describes these findings as "terrifying on so many levels." She questions where these children will turn as adults if they don't trust mainstream financial services, what types of investments they might pursue, and how the City will attract future talent.
The Economic Case for Financial Education
While social, moral and fairness arguments exist for improving financial literacy, the financial numbers present a compelling case. Recent academic research by Professors Giovanni Gallo and Alessia Sconti demonstrates that even a small reduction in financial illiteracy could significantly boost national household income.
The study found that making just 10 percent of financially illiterate people financially literate could increase average household disposable income by 1.5 percent across the entire population. Based on Italian data showing an estimated €285 annual uplift per household, the UK equivalent would mean an extra £550.50 per household each year.
With 28.6 million households in the UK, this translates to a total economic benefit of nearly £16 billion annually, while simultaneously helping to reduce inequality.
Rebuilding Trust and Securing Future Prosperity
The trust issue extends beyond primary schools. Financial Conduct Authority research reveals only eight percent of 18 to 24 year olds have confidence in the UK financial services industry, compared to 17 percent among those aged 45 to 74.
Hunt emphasises that "education and information create transparency, and transparency builds trust." This philosophy underpins City Pay it Forward's campaign, named The Year Six Dividend to emphasise that financial education represents an investment with long-term returns.
A financially literate population with more disposable income should also mean more money flowing into long-term savings and investments, creating positive ripple effects throughout the economy and the City.
Hunt concludes with a challenge to finance professionals: "Do we really want to see the next generation go out into the world without understanding how debt works, without knowledge of how to invest sensibly, and without trust in financial institutions?" She argues that any finance professional should recognise that a financially literate population represents the ultimate return on investment.
