Survey reveals a nation of financial illiterates

Nearly four out of five people do not know that APR refers to the interest and other costs of a loan, four in ten admit they do not understand mortgages or ISAs, and a third lack confidence in their financial affairs.

Nearly four out of five people do not know that APR refers to the interest and other costs of a loan, four in ten admit they do not understand mortgages or ISAs, and a third lack confidence in their financial affairs.

These are some of the results of a survey conducted by Mori for the Institute of Financial Services (IFS), the rebranded name for the Chartered Institute of Bankers, which says it is shocked by what it discovered about financial illiteracy in Britain. Gavin Shreeve, the IFS chief executive, said: "We are already becoming aware of the consequences of large sections of the population not saving enough now for the future. This report quantifies the financial literacy gap that exists in the UK. Unless tackled, this will lead to an over-reliance on the state in old age, as people continue to be unable or unwilling to determine the right solutions to their own needs."

The survey of 1,920 adults found that just over a quarter did not know that a financial adviser was someone who is supposed to offer clients appropriate guidance on money matters in line with their own circumstances.

One in five did not understand the concept of inflation. Nearly a third did not know that insurance products are designed to protect their owners from unforeseen events. Shockingly, says the IFS, only 30 per cent could calculate four per cent interest on £2,000 over two years (it's £160).

However, a surprisingly high one-third of those questioned correctly answered that the Financial Services Authority was overall responsible for improving financial understanding among consumers.

The IFS is tackling the "literacy" problem on two fronts. Next month it is holding what it calls "a summit of education professionals, politicians and financial services" at the QEII Centre in Westminster.

Among the speakers taking part will be Stephen Timms, the chief secretary to the Treasury, and Mike Tomlinson, the former chief inspector of schools, who this week presented plans for a radical reform of the education system.

Mr Shreeves said: "We are bringing together key decision-makers from government, education and financial services to try to arrive at a blueprint for tackling this issue at grass roots, in schools." The IFS is also launching a personal finance A-level course to supplement its present AS-level.