Poor money skills fuelling ‘rise in debt and despair’

Last week, a free service that helps consumers who have bought goods or services in the EU – all for free – issued a mayday call.

The only service of its kind available to UK consumers, the UK European Consumer Centre, is manned by 11 specialist legal advisers who help Britons when they run into problems over transactions with EU-based companies. And it’s heading for closure unless the UK government and the EU fail to agree its future role before the end of December.

If it is forced to shut down permanently, it will be yet another door closed on those trying to sort out their money matters, from reclaiming for faulty goods to making the most of their savings – just when expert guidance is most crucial.

As a nation, we don’t seek or receive advice over our financial affairs thanks to a perfect storm of uncertainty, disinformation and the unintended consequences of an historic bid to make fees and charges for advice clearer and more transparent.

In fact, those people who need it most are usually the least likely to be bolstered by professional expertise when it comes to making the most of make things fairer and clearer, alongside their money.

Research released this week shows one in five of us is now worrying about money every day as the recession begins to bite.

We know financial skills and knowledge are crucial. Far more people believe financial wellbeing is about understanding how to manage and control our money than simply earning plenty in the first place.

And yet fewer than one in four of us is confident about our money management skills. Almost one in five of the UK’s working population no clue how to manage their money or have some idea but frequently get it wrong.

With a marked correlation between financial know-how and health, the consequences could be significant and wide-ranging – especially at the moment.

Almost 40 per cent of those who say they lack money management skills say they are in more debt now than they were six months ago. A third are eating into their savings and 41 per cent are struggling to pay bills. Worryingly, more than two in five of this group people say they have lower life satisfaction than they did before lockdown.

But those with stronger financial skills have far fewer problems, with just 9 per cent reporting problems covering their everyday costs.

“This year’s events have had a huge impact on many aspects of our lives, including our finances. While plenty is out of our hands, one thing we absolutely can control is the way we manage our money – and this can help alleviate stress and make our cash go further,” says Tim Perkins, co-founder of financial wellbeing platform nudge.

“But a really worrying number of people don’t feel confident in their skills and knowledge when it comes to managing their money. This knowledge is especially critical in tougher times.”

“Financial literacy plays a huge part in our capacity to perform and stay well. Having the right skills and knowledge to manage our money grants us a sense of agency and allows us greater autonomy in how we live our lives,” adds Susanne Jacobs, organisational behaviour specialist and founder of workplace wellbeing consultant, The Seven.

“Without these, we can be trapped by our circumstances with little ability to carve out our chosen path – and this depletes our energy, motivation and performance, to the detriment of every aspect of our lives. With the pandemic amplifying financial concerns, we need to act now to protect our financial – and general – wellbeing.”

Some of our everyday issues, with budgeting or cost savings for example, can be alleviated with a dive into one of the nation’s free advice sites or services, including the Money Advice Service or Citizens Advice.

For personal advice and planning over more complex money matters though, it usually pays to bring in the professionals.

But we’re being held back, often by trust issues, worries about being inundated with information we don’t understand, not wanting to look foolish and even a fear that we don’t have enough money to warrant professional advice.

Almost 80 per cent of people who have used a financial adviser have savings and investments of less than £100,000.

“We need to set the record straight that taking financial advice isn’t just the preserve of high earners or those who’ve already built up large amounts of savings and investments,” says Steven Cameron, pensions director at Aegon.

“Triggers for advice are often key life events, whether that’s getting married, having a child or considering retirement options. And there are signs that the coronavirus crisis, the biggest public health issue in more than a century, is being added to that list. No matter what stage someone is in life, an adviser’s expertise can add real value, even for those with modest incomes or savings.

“Tapping into financial advice can help improve an individual’s finances and accessing advice earlier can often have the bigger influence on an individual’s financial future. Advice doesn’t have to mean an on-going relationship either.”

There are two types of financial adviser operating in the UK – independent financial advisers or IFAs who consider the full range of products to find the right fit for their clients, and advisers restricted to advising on either a specific provider or specific products.

It’s always worth going fully independent, a status which should be made clear on their website or from a quick call.

Check the adviser you select appears on the Financial Conduct Authority’s Financial Services Register so you can be confident they are authorised and that their advice is legal, accurate and up-to-date. And always ask for an adviser’s credentials and qualifications.

Financial advice is now charged as fees rather than as commission – a change made in 2012 to make the process clearer and fairer, but which inadvertently also meant those who need the most help quickly felt, or indeed were, priced out.

After an initial fact-finding meeting, which is usually free, advisers will either charge on a percentage or flat fee, or hourly charge basis.

A local IFA will have a reputation – for good or ill – so check for any recommendations from those you trust.

Elsewhere, the most comprehensive database of both whole of market and restricted advisers is available from Unbiased.co.uk.

Should any problems arise based on the advice you receive and the adviser is unwilling to make reparations, the Financial Ombudsman Service will be able to tell you if you can make a claim – something you won’t be able to do if you make a mistake or the results aren’t what you hoped when going it alone.