One in six people have healthy finances and a positive ‘mindset’ towards money, while a smaller but comparable number lack either, new research reveals.
Most adults could improve their financial wellbeing by giving thought to what makes them happiest, considering how their future self might want to live, and resisting making unrealistic comparisons with wealthier people, the study found.
But there is also room for progress in financial knowledge, with just one in 20 people able to answer five money questions correctly as part of the survey by financial firm Aegon.
>>>Can you pass the money test? Find the five questions below
Attitudes to money: People consistently score lower on ‘mindset’ than on purely money matters, the study found
The study of 10,000 people was split in half between money factors like income levels, budgeting skills and affordability of debt, and ‘mindset’ issues like planning ability and exhibiting strong nerves in a crisis.
Participants were asked a series of questions across such categories and scored on each, but where people lived and average earnings in their area were taken into account to adjust for regional income disparities.
The findings include:
– Some 16 per cent, or an estimated 8.6million of the population based on official statistics, have both healthy finances and a positive money mindset
– But 12 per cent, or around 6.5million people, struggle with both of the above
– About two fifths of people have only a vague idea of where they want to be financially in 10 years’ time
– That compares with 29 per cent with a specific idea of where they are heading
– Some 28 per cent have little sense of what gives them joy or purpose in life
– Almost nine out of 10 people do not have a financial plan to achieve long-term goals
– About one sixth of the population frequently compares their finances to those who are better off, with younger people far more likely to do so
– Some 40 per cent of the population have less than £100 left to spare at the end of each month
– And 29 per cent of people do not have any emergency savings
– Just under half of people have some form of unsecured debt (so excluding mortgages) which averaged £5,700
– People consistently score lower on ‘mindset’ than on purely money matters, regardless of their income, suggesting many might benefit from trying to think in more productive ways – see below on how to improve this.
The study of 10,000 people was split in half between money factors and mindset
Test your financial knowledge: Take the money quiz
Aegon posed the following financial literacy questions on interest rates and investment concepts to the people surveyed. Scroll down to the bottom of this article to find the answers.
1. Suppose you had £100 in a savings account and the interest rate was 2 per cent per year. After five years, how much do you think you would have in the account if you left the money to grow?
a. More than £110
b. Exactly £110
c. Exactly £102
d. Exactly £100
e. Don’t know
2. Imagine that the interest rate on your savings account was 1 per cent per year and inflation was 2 per cent per year. After one year, would you be able to buy…?
a. More than today with the money in this account
b. Exactly the same as today
c. Less than today
d. Don’t know
Where people lived and average earnings in their area were taken into account to adjust for regional income disparities.To be in the top fifth of incomes, monthly take home pay after tax was £3,440 or more. Those who earned less than £1,200 fell into the bottom fifth of incomes
3. Do you think that the following statement is true or false? ‘Buying a single company stock usually provides a safer return than a stock mutual fund’?
c. Don’t know
4. Do you think that the following statement is true or false? ‘Experts are able to judge the market to buy and sell shares at the right time’
c. Don’t know
5. Do you think that the following statement is true or false? ‘I think I can judge reasonably well when the best time to buy and sell is’
c. Don’t know
How can you improve your mindset about money?
Aegon offers the following tips.
1. Put happiness first.
Be conscious of the things that give you sustained happiness – be that joy or purpose – and ensure that you are spending time, energy and money on those things with your future happiness in mind.
2. Draw savvier social comparisons
If you’re making social comparisons, make them healthy and realistic, instead of comparing your finances to others whose financial lives appear better. Or even use your past self as a comparison to measure how far you have come.
3. Picture your future self and lifestyle
Spend time regularly visualising your future self and what you might be doing. Paying attention to our future selves, the life we want to live and our pension and investment goals to achieve that lifestyle, can keep us on track.
4. Make a long-term plan
People who write out a financial plan save more regularly and do better financially.
5. Hold your nerve in a crisis
When tempted to change your long-term investments, remember why you started saving so you don’t panic and do anything you might regret.
Using statements like, ‘Next time markets drop in value, I will remain calm and think of my long-term goals’, can prepare you for a financial crisis.
What can you learn from this research?
‘Financial wellbeing is an increasingly “hot” topic, but it’s usually talked about in very narrow terms – money in the bank or levels of debt,’ says Steven Cameron, pensions director at Aegon.
‘Our study shines a light on new areas of financial wellbeing that we hope will resonate with, and provide helpful insight to, a wider range of people – and not just those who earn the most or the least money.
‘It also provides answers to the age-old question of whether money equals happiness and finds that while important, it’s just one half of the story.
‘What we’ve found is that for most people, the biggest improvement they could make to financial wellbeing is to reframe the way they think about money.
‘It’s not always possible to make quick changes to your level of income or savings but by thinking about what sort of future you’re working towards, and the steps you’ll need to get there or by making more realistic social comparisons, you can make big strides towards a better relationship with your money.’
Money test answers. 1.a; 2.c; 3.b; 4.b; 5.b. In the Aegon study, 5.9 per cent of people got no questions right, 16.3 per cent got one right, 27.1 per cent got two right, 29.0 per cent got three right, 16.5 per cent got four right and 5.3 per cent got all right.
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