People with low confidence in their financial abilities are less likely to invest or save to make their money go further, according to a new report by TSB Bank.
The 'Money Confidence Barometer' found that only 19% of those with “no confidence” in their financial comprehension are putting money into long-term savings or investments, compared to 34% of those with “high confidence”.
Another 19% of people say that a lack of savings is one of their “top three financial concerns” as the country emerges from the latest coronavirus lockdown.
What did the survey find?
The research, based on a survey of more than 5,000 UK adults, measured the nation’s confidence in managing their finances and explored the factors which impacted how they feel.
The key to being confident with money is understanding how it works, but TSB's report found that a significant proportion of adults are not confident in the use of technical terminology and struggle to understand how different financial products work, with financial jargon and complex terminology leaving 30% of people finding financial products and services “confusing”.
The research also revealed a stark regional divide, with those in the East of England feeling most confident about handling their money - 70% saying they have “moderate” or “high” money confidence - while people in the North East of England feel the least confident, with 52% having "low" or "no" money confidence at all.
An encouraging 37% of people have increased their savings since the start of the pandemic, with 35-44 year-olds having saved the most, with an average of more than £7,000 saved up. However, those with limited confidence in their finances are more likely to miss out on the opportunities to earn from saving and investing.
Online banking became an essential tool for many households throughout the pandemic, with 32% of Brits using online banking “more frequently than ever before” during lockdowns, and 95% saying that they intend to maintain their current level of usage once the pandemic ends. Digital banking services also helped 64% to "improve their confidence in their finances".
The main reasons cited for online banking helping improve confidence were: the ability to easily access their balance (62%); easy access to all of their financial products (51%); planning ahead by knowing their outgoings (41%); and more confidence in being able to spot and block potential fraud (24%).
However, there was still a clear geographical divide in levels of confidence and use of online banking. 44% of people in urban areas used online banking more frequently during the pandemic, compared to just 24% of people in rural areas.
Impact of coronavirus
For the majority of Brits, the pandemic has not changed financial confidence levels, with 56% saying that they feel about the same level of confidence towards the overall state of their finances as they did before lockdown. However, 24% say they feel "more confident" about their financial situation as a result, with this increased confidence due largely to being able to save more money (47%); a decrease in outgoings (33%); finding it easier to manage money online (30%); and reducing levels of debt (21%).
Men were more likely than women to say they feel more assured about their financial situation following the pandemic, with 27% of men describing themselves as "more confident" compared to 22% of women. And, despite being disproportionately impacted during the pandemic by closures in sectors such as hospitality, young people were more likely to say they feel "more confident" about the overall state of their finances, with 33% of 18–24 year-olds and 30% of 25–34 year-olds feeling more confident.
Roughly the same proportion of people with "no" to "low" confidence (28%) and "high" confidence (28%) said that their confidence has been negatively impacted by the pandemic. However, 16% of people in the North East of England feel more confident about being able to plan for the future financially due to Covid-19, compared to an average of 24% in London and the South East.
Link between income and confidence
The 'Money Confidence Barometer' found that the link between household income and confidence in finances is "far from straightforward". People with higher incomes tended to report having a higher level of money confidence, and those with an annual household income of £80,000 or more are more likely to be confident in managing their money.
This might lead some to the conclusion that the more you earn, the better you manage your money, but TSB's survey threw up some strange results; Those with an annual household income between £60,000 and £70,000 reported feeling less confident about their finances than those earning between £20,000 and £60,000 - so it's clear that having a higher household income is not the only factor in determining greater financial confidence.
Greatest post-pandemic concern
As we emerge from the pandemic, TSB's report also found that 40% of Brits consider the cost of living to be their greatest concern, particularly in relation to younger people - 46% of 18–24 year-olds and 45% of 25–34 year-olds listed the cost of living as their top concern compared to 34% of 65–74 year-olds.
Residents in Wales are the most concerned about the cost of living (52%), with the least concerned being those in the North East of England (28%). Over half of those whose savings and investments have decreased as a result of Covid-19 said that the cost of living is within their top three concerns.
Factors that contribute towards money confidence
According to TSB, the factors which contribute most towards feeling money confident (or the biggest barriers to not feeling money confident) are:
- Being able to make the right financial decisions
- Being able to understand financial concepts, products and services
- Knowing how different financial products and services work
- Having a good understanding of what different financial terms mean
- Being happy to put in effort to research different financial options
- Feeling comfortable talking about money with friends and family
How to become more confident with money
If you're looking for ways to become more confident with your finances, make sure you use Damien's Money MOT. All you have to do is answer a few simple questions to get a personalised rating and you can even request a free action plan to help you get on top of your money matters.
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