Understanding Financial Jargon

In his maiden speech of 2023, the Prime Minister, triggered the debate about the quality or poverty of numeracy skills in the UK. He announced a desired plan to introduce the study of maths up to the age of 18 for all pupils in Egland. This announcement reignited the attempt to address the UK’s poor standards in numeracy skills.

Some 8 million adults in England have the numeracy skills of primary school children. At present only 50% of 16-19 year olds study any maths at all. This is worsened for disadvantaged pupils, as 60% of them do not have basic maths skills at age 16.

In a global context, the UK is one of the only OECD countries in the world that does not require children to study some form of mathematics up to the age of 18. Two drivers seem to be underpinning the announcement by our PM. Firstly, the recognition that in an increasingly data orientated world with the prevalence of statistics, there will be a requirement for more analytical skills. Secondly, “…letting our children out into the world without those skills, is letting our children down”.

The merits or not, of these can be debated endlessly. However, the PM’s case moved on to link the study of maths to 18 with equipping our young people with the correct quantitative and financial skills to be confident to address finances in later life.

At this juncture, it may be argued that this is an erroneous leap. One may ask, what has the understanding of Pythagoras Theorem or trigonometry got to do with understanding mortgage deals or gilts?

It may be argued, the only common factor between them is the existence of numbers or digits. The mathematically minded reader may notice that this common factor is no more than the lowest common denominator, another concept from our study of mathematics.

Irrespective of one’s views or thoughts on the PM’s announcement, research by Aviva has found “7 out of 10 UK adults are puzzled by financial jargon.” When explored further, the following findings came to light;

• “Less than two thirds (61%) of UK adults aged 18-24 have heard of the term “pension”

• Only three-fifths (57%) of UK adults aged 18-24 are familiar with the financial term “inflation”, while just a quarter (25%) have heard of “contents insurance”

• But 18-24s are most likely to be aware of the phrase “ESG fund”, compared to other age groups

• People who have heard of financial phrases often don’t understand their meanings”

Another revealing finding was 75% of UK adults are baffled by the term “the economy”. The Aviva study identified some reflective disparities between the ages. The under 25 year olds were less likely than other age groups to have heard of certain financial products and terms.

These included contents insurance, equity release, insurance premium, annuity and SIPP. This may be attributed to the fact that many under 25-year-olds had yet to consume financial products/services. However, it may also demonstrate their lack of preparedness for the world of everyday finance as an adult.

The findings of the Aviva study, begs the question how would the compulsory studying of maths to the age of 18 better equip future generations for the world of finance?

Beyond the study of Aviva, a wider concern and question that may be asked or tested across all age groups is, how many UK adults understand their payslips? If UK adults are challenged by their own payslip, is it any surprise that UK adults struggle with such concepts/terms as:

• Percentages

• Compound interest rate

• Net Present Value

• Decreasing cover

UK adults understanding of the economy and financial concepts/terms/products may require more than just extending the study of maths to the age of 18.