• Paul Marcantonio, Executive Director - UK & Western Europe at Ecommpay


• 19.04.2023 04:30 pm
#finance

In the face of the cost-of-living crisis, financial literacy is more important than ever and as April is Financial Literacy Month, it’s an opportunity to review and improve financial knowledge.

The pandemic was a catalyst for a plethora of digital finance products to come to market, with lots of fintech innovation launching new ideas. However, as with many financial solutions before, the challenge is in communicating the risks and benefits so the everyday consumer or business owner has access to all the information they’ll need to make the best financial decisions.

To put it simply, financial literacy is the understanding of financial concepts. This involves everything from budgeting and responsible spending to savings and pension products, tax bands, and what mortgage rate fluctuations mean for homeowners. Those skills can help people manage their money better, plan for their futures, and avoid financial abuse.

However, the financial literacy knowledge gap risks widening under the pressure of the cost-of-living crisis. High inflation levels mean many people and businesses have become more vulnerable, which unfortunately results in larger ramifications if they don’t understand the financial products available to them. With additional financial pressure on all aspects of life – from energy bills to food, clothes, and almost every single household expense on the rise – the need for improved financial literacy has never been greater.

The state of play: consumers

Ecommpay data shows, a quarter of consumers still don't feel financially literate when it comes to buy now, pay later (24%) even though it rose to popularity in the early 2010s. Meanwhile, over a third say they don't fully understand open banking (38%), which launched in 2017, and when it comes to crypto payments, almost half of UK consumers don’t feel confident in their understanding (46%) – even though the first transaction took place back in 2010.

Compounding this, it’s estimated that a quarter of UK adults have less than £100 in savings and half of people don’t feel confident managing their money day-to-day. 

This has led to a new trend, where people have turned to money influencers on social media for saving hacks and a general understanding of financial products. More commonly known as FinTok, these short and accessible videos offer advice and support, and it's now thought that one in three adults are using social media platforms like TikTok to find money-saving tips and financial advice.

This is because around 8 million adults in the UK have the numeracy skills of primary school children. So, in a bid to transform England’s low numeracy rates, at the beginning of the year prime minister Rishi Sunak announced plans to ensure that all school pupils in the country study maths until the age of 18. In a similar vein, the 2023 Lord Mayor of London, Nicholas Lyons, has made financial literacy a theme of his one-year tenure. It’s encouraging to see the government prioritising these campaigns, with help from a variety of sources, consumers can boost their financial literacy levels and be empowered to save, invest and found businesses.

The state of play: businesses

Interestingly, almost half of business leaders feel it is primarily the responsibility of banks to educate consumers about online financial literacy (48%). This is followed by governments (41%) and then payment providers (40%). However, low financial literacy levels cannot be solved by one entity alone. Whether via FinTok or FinTech, anyone promoting financial products must also ensure they share financial information responsibly.

However, Ecommpay’s data also shows that more than half of business leaders (54%) still feel they are facing various challenges in supporting the online financial literacy of their consumers and partners. Only a quarter of businesses (27%) felt their efforts to educate consumers about financial tools offered were successful and 26% expressed it was difficult executing policies to help with financial literacy.

Ultimately, the cost-of-living crisis is sparking renewed interest in increasing financial literacy. While we still have a way to go, there is a united collaboration from payment processors through to the government in prioritising upskilling the nation. More education and support are still required to ensure all new payment options can be utilised responsibly and consumers are not left in the dark about the implications of trading crypto or agreeing to BNPL schemes. As businesses work to recover and consumers navigate the cost of living crisis, financial education must be a constant to realise the potential of these innovative payment options.