The financial advice gap is ever prominent in the UK. Support is readily available for people with large sums to invest, but the ‘middle majority’ find themselves bereft of independent, expert advice when it comes to their finances. Fintech offers a solution to this; the agility of fintech makes it accessible for many and able to target those who fall into the advice gap. Rob Brockington, CEO of Claro Money shares his thoughts on how financial inclusion can improve mental health.
The UK is lagging behind other countries in levels of financial literacy. Data from the OECD shows the UK ranked 15th out of 30 countries, with average financial literacy scores 12% lower than France, the highest-scoring nation. Poor financial knowledge should be seen as a national health emergency. Its prevalence is often hidden, but the toll it takes on people’s daily lives is all too real in the UK.
Low levels of financial literacy don’t just result in poor financial decision making, it is also linked to lower levels of mental wellbeing. Research by Claro Money highlights that people’s average mental wellbeing scores, calculated across 14 aspects of wellbeing, drop by more than 37% from those with high financial confidence to those with the lowest. Furthermore, it is estimated that four million people in the UK currently have financial problems that have caused them to develop mental health issues. It is frightening, the effect the advice gap is having on the UK. It is clearly essential to provide people, of all incomes and ages, the financial education necessary to feel confident about their financial decisions and empowered to make the right choices for them.
Young people are especially at risk of poor mental wellbeing due to a lack of financial education. Claro Money’s research found that younger age groups (34 and below) had financial literacy scores 16.5% below the UK average, which is already concerningly low.
We want to close the advice gap by offering accessible financial coaching for all. As the UK’s first digital financial coaching app, Claro Money aims to simplify personal finances and allow users to establish clear financial goals, with a focus on those under the age of 45, as we recognise this is where financial literacy is lowest.
As a nation, it is important to understand that we don’t have to deal with our personal finances alone. Speaking to a financial coach or someone within the Claro Money community can improve your financial knowledge and help you to understand the financial goals that are most important to you.
Here are some of Claro Money’s top tips to avoid some of the UK’s most common financial pitfalls.
- Start a budget
Budgeting is the foundation of good financial planning. Shockingly, 39% of UK households have no budget to track their incomings and outgoings. A good rule for budgeting is the 50/20/30 rule – this is the idea that roughly 50% of a person’s income should be spent on essentials such as housing, food and bills and 30% on things such as shopping and dining out. The remaining 20% should be kept aside for savings, long-term goals, and paying off any debts.
This is one of the basic money management skills that we need to teach young people. It is vital that they have even a basic understanding of personal finances to help them as their financial needs and plans develop. However, there is an evident lack of financial education for young people, resulting in low levels of financial literacy and meaning as they grow up, they lack the ability to make smart money decisions.
- Give yourself financial goals
By setting financial goals, you are shaping your future life choices. Goals can be set for anything big or small.
Tracking progress on the Claro Money app allows users to monitor progress on financial goals. Visualising this process and your progress can help boost motivation and encourage people to stay on track with goals big and small.
Furthermore, the community of Claro Money encourages users to achieve their goals. By joining like-minded people in a financial community there is the opportunity to share ideas and when others achieve goals, you will likely be motivated to keep working towards your own.
- Do your research
Failure to carry out proper due diligence of financial products on the markets before purchase can be dangerous. The Mental Health Report found that fewer than half of UK adults compare options from different providers before choosing their most recent financial product, indicating that Brits are likely choosing financial products that aren’t right for them.
Our app provides tools to help with investing by allowing users to choose from a wide range of investments based on goals, values, and risk level.
- Take a longer-term view
When it comes to setting and achieving financial goals, it’s important to think about the long-term as well as your immediate objectives.
On Claro, our Coaches can help you build a well-rounded financial plan that means you’re managing your money well in the short term, but are also building wealth for the long term.
We can help people to take control of their retirement planning, which is all the more important given that only 34% of those aged between 25 and 34 years old hold a pension.
- Practice ‘delayed-gratification’
It is often tempting to spend money rather than to save it. However, to promote healthy spending habits and encourage a smart money mindset, it is vital that people don’t spend beyond their means.
Throughout the pandemic, we have seen a rise in impulse spending by 18%. During difficult times we often feel the need to treat ourselves perhaps more often than we usually would. However, it is important to keep this extra spending under control to avoid future financial problems. Instead, consider the wellbeing impact and gratification of achieving your long-term financial goals, such as creating an emergency fund.
Evidence shows that a lack of financial security appears to seriously affect our ability to feel good about ourselves, our levels of optimism, cheerfulness, confidence, and ability to relax.
Claro Money is committed to alleviating the stress associated with money as well as ensuring young people are equipped with financial knowledge. With the aid of fintech, Claro Money hopes to close the advice gap in the UK, to ensure everyone feels financially empowered.