Do you know what key financial terms mean?

When we’re watching the news, applying for a loan or thinking of buying a new car, we’re confronted with all sorts of financial jargon - and the assumption is probably that you know what these words mean.

But in truth, many of us don’t understand financial terminology that we hear quite routinely.

And that lack of understanding could be costing us money.

How common is poor financial literacy?

The Richmond Project, a charity founded by ex-prime minister Rishi Sunak and his wife Akshata Murty, tested more than 10,000 British adults on their understanding of financial concepts like inflation, compound interest and risk diversification.

Worryingly, less than three in ten (28%) people could explain what these three terms actually mean.

Meanwhile, four in ten answered none or just one of the questions correctly.

So that means many of us are making big financial decisions, like taking out a mortgage or buying expensive items on finance, without really understanding the full implications.

Poor financial literacy has real-life consequences

This lack of financial knowledge and understanding has an impact in the real world.

For example, many people with poor financial literacy aren’t prepared for sudden and unexpected costs.

In fact, more than half (51%) said they’d be unable to come up with £1,500 to cover an emergency expense.

And while 70% of those with poor financial literacy said they’d like to improve their knowledge and understanding, those with the lowest financial literacy scores were found to be the least likely to want to access help and support.

Similarly, just 58% of those with very poor financial literacy want budgeting help.

“Financial literacy is not an abstract or dry concept,” said Lizzie Gaisman, chief executive of The Richmond Project.

“It is a tangible skill that has emotional impact. 

“It shapes whether people can weather a financial shock, plan for the future or simply feel in control of their own lives.”

School curriculum is set to change

Thankfully, progress is being made, so hopefully, the next generation will be able to make more informed and confident financial choices.

The government has confirmed that financial education will become compulsory for all primary and secondary school pupils in England as part of a major overhaul of the national curriculum.

From September 2028, money matters will be taught as part of compulsory citizenship lessons - alongside other vital life skills such as spotting fake news and understanding climate change.

Our own research shows that many of the people who’ve come to us for help wish they’d been taught about money much earlier.

More than nine in ten (94%) of the people we asked said they didn’t get any financial education when they were younger.

But notably, 80% said they thought being taught about topics like budgeting and saving would have made a difference to their situation.

So it’s clear that financial literacy isn’t something that’s nice to have - it’s an essential life skill.