Mis-selling of financial products is likely to increase unless the industry acts to tackle the consumer knowledge gap in terminology and financial literacy, suggests research by the Institute of Financial Services.
In what the IFS describes as “a major audit” of the British consumer’s financial nous, the study discovered almost eight out of ten (79%) of people did not correctly identify the term ‘APR’ as the interest rate and cost of a loan, even though almost all of those people deem themselves to be confident about their finances.
Similarly, this same report revealed three out of ten (29%) did not understand a standing order is best described as regularly paying the same amount of money to someone while 40% of people do not really understand financial products such as mortgages and Isa, while three in ten (32%) lack the confidence to deal with their own affairs.
Such findings were published just days after the launch of the first A level equivalent qualification in financial studies, to point out the savings levels are likely to continue to fall and mis-selling is likely to increase unless the industry comes together to improve consumer knowledge.
The report also reveals 30% didn't understand products which protect you from unforeseen events are known as insurance products and only 30% could calculate a 4% interest on £2,000 over two years.
To try and tackle the problem, a ‘summit’ is being held at the QEII Centre in Westminster, London on November 3rd,and will include speakers such as Stephen Timms, chief secretary to the Treasury, Mike Tomlinson, former chief inspector of schools and IFS president Ron Sandler - and author of the Sandler Report into long-term savings - as chair.
Among other findings of the report – produced by MORI Financial Services and tested on almost 2000 people – include:
Caring for children and elderly relatives
Similar to June 2007
Square Mile’s series of informal interviews
Fine reduced to £60,000
Two roles created