UK ranks 15th in financial literacy, lagging European counterparts

UK ranks 15th in financial literacy survey, lagging behind European counterparts

This comes as further research reveals 70% of Brits feel overwhelmed by financial jargon used by their banks  

Research from the Financial Conduct Authority (FCA) has revealed that a staggering 1-in-4 Brits is currently facing or on the verge of financial difficulty due to the cost of living crisis. A significant part of this brewing crisis is the evident financial literacy gap in the UK, which has left millions across the country without the necessary tools needed to manage their personal crises.

Amidst this concerning trend, Rameez Zafar and Zahra Hassan, co-founders of Eligible – the UK’s first platform using AI to help banks support financially vulnerable customers – explain how AI can be implemented to address the UK’s financial literacy crisis.

Highlighting the extent of the issue, according to the OECD/INFE the UK ranked 15th in terms of financial literacy out of the 30 countries which were surveyed, sitting just above Thailand and Albania and lagging behind economies of a similar size such as France, Norway and Austria.

Adding to this issue is the fact that a staggering 48% of the population now also lack trust in their banks’ ability to guide them during financial challenges, according to GFT. This trust deficit is further exacerbated by the Bank of England’s (BoE) inadequate communication regarding inflation, as pinpointed by the National Institute of Economic and Social Research, leading to a persistent escalation in borrowing costs which aggrieves the financial situation of many.

Moreover, the Money and Pensions Service (MaPS) divulged that 25% of UK adults have under £100 in savings, while close to 50% concede to feeling insecure when faced with financial decisions, as per data from Freetrade.

A study from The Royal Mail elucidated that the complex financial jargon often leaves seven in ten Brits feeling overwhelmed, showcasing a dire need for simplified and accessible financial guidance. In light of these findings, Eligible presents some of the fundamental banking terms that British consumers should be familiar with to navigate the banking system effectively and make informed financial decisions:

Annual Percentage Rate (APR):

This is the annual rate charged for borrowing or earned through an investment, expressed as a percentage. It includes fees to reflect the true cost of borrowing, providing a way to compare the cost of different loan and credit offers.

Compound Interest:

This is the process where interest is earned or charged on both the initial amount of money and the interest that has already been added. Over time, compound interest can significantly increase the amount of money you earn or owe.

Credit Score:

A credit score is a numerical representation of a person’s creditworthiness, which is essentially an estimate of how likely they are to repay borrowed money. Banks use credit scores to evaluate the risk of lending money or extending credit.

Individual Savings Account (ISA):

An ISA is a type of savings account available in the UK that offers tax-free interest payments. There are different types of ISAs, including Cash ISAs and Stocks and Shares ISAs, each with different rules regarding contributions and withdrawals.

Overdraft:

An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation, the account is said to be “overdrawn.” Banks may charge fees for overdrafts or offer overdraft protection services to cover the shortfall.

How can Eligible help?

Stepping into this crucial juncture, Eligible, co-founded by Rameez Zafar and Zahra Hassan, emerges as the UK’s premier platform leveraging AI to facilitate a tailored banking experience. Aiming to mend the fractured relationship between banks and their clientele, Eligible ensures that consumers, especially the financially vulnerable, are equipped with clear and concise information to make informed decisions.

Eligible’s white-label platform, already being utilised by a myriad of Britain’s leading lenders, employs AI technology to analyze customers’ financial and behavioural data. This nuanced analysis enables the identification of individuals prone to financial default, subsequently working with lenders to provide tailored communication and support. By promoting meaningful and timely conversations revolving around personalised financial support, Eligible aims to bridge the disconnect between banks and consumers, guiding Brits towards a more secure financial future amidst these testing times.

AI can be used to leverage insights from customer interactions, behaviours and transaction histories to identify and support vulnerable customers in a period of financial insecurity. Defaults have already increased by 30% in Q2 – the highest level since 2009 – while the number of British adults who missed payments on domestic bills or failed to meet any of their credit commitments in three or more of the six months before January rose by 1.4m, according to the FCA. Indicating a clear responsibility for banks to help customers struggling to make ends meet, Zafar and Hassan explain that utilising AI and behavioural data can help generate tailored financial expertise to prevent further defaults for struggling borrowers amidst the current economic landscape. 

Aiming to facilitate meaningful and timely conversations that revolve around tailored financial support, Eligible was created to bridge the disconnect between banks and consumers. The white-label platform is currently used by a host of Britain’s leading lenders, using AI technology to analyse customers’ financial and behavioural data to detect if they are vulnerable to defaulting. Once potential customers are identified, Eligible work with lenders to provide concise and digestible information that best supports their financial situation, tailoring bespoke communication to assist customers to make informed decisions about the most relevant products and services. 

Zahra Hassan, comments on how financial institutions can help bridge challenges with financial literacy in Britain:

“Banks bear a significant responsibility in helping Brits improve their financial literacy, and they are inherently motivated to refine their language in digital channels in order to do so. The crucial shift in the concept of financial literacy lies in recognising that it’s not merely about comprehension at the point of sale for financial products such as mortgages, credit cards, auto loans, and personal loans, as these are not everyday acquisitions.

“Instead, it necessitates continuous education and providing customers with a comprehensive understanding – like watching a movie of their financial journey rather than capturing a static snapshot. Banks must take on the task of enhancing financial literacy that goes beyond the confines of fine print and mere regulatory compliance.”

Rameez Zafar, comments on AI is being used by banks to improve communication with its customers:

“What AI can do today is interact with customers and measure the level of understanding of their existing product before providing bespoke financial expertise. Based on this, we can start to form views on the likelihood that they could struggle to meet their payments. 

“AI can be used to detect how well people understand their financial product and use this data to spot vulnerable customers in order to better educate and support them.

“AI has the power to transform customer support from a reactive relationship to a proactive one. Instead of banks providing support only when the customer asks for it, AI can detect those who are likely to need assistance and proactively engage with them, fostering education and active dialogue.”