Open Finance takes steps to combat financial literacy
Woodhurst’s recent Open Finance report found that 47% of people do not feel confident making decisions about financial products and services.
This should come as little surprise. I can’t remember a time when a teacher in school explained to me how a mortgage worked, or how compound interest can make an enormous difference to the size of your pension pot. My financial education largely came from my parents, research online and blind ‘on the job’ learning.
The country is currently failing almost half of the population by not providing the learning and tools to help people make informed financial decisions, and this invariably leads to wider socio-economic challenges which can impact the economy.
In typical consultant fashion, I began thinking about what model would be required to improve financial literacy and inclusion across the whole country and how it could work. I can see three primary factors which are key to building financial literacy and inclusion:
- Education: Starting from a young age, our children and young adults need to be continually educated about the financial services industry and the products within it.
- Accessibility: Products and tools needs to be accessible to all. It is vitally important that a subset of society isn’t restricted from financial products due to blanket rules or arbitrary decisions.
- Tooling: Participants in the financial services industry should have the tools to see relevant products across the whole market alongside the ability to easily switch between products.
We are a long way away from this blueprint becoming an effective reality, however, Open Finance is helping to address the imbalance in some of the areas. Open Finance has already made more products accessible to more people, and has increased the tools available that help people to understand the options which exist in the market.
The tools that Open Finance has brought to life bridge the financial literacy gap by proactively helping customers to better manage their money.
Fintech Lumio coins itself as the next generation of personal finance. Lumio is a tool which can connect your entire financial life in seconds and represents it in a clear and concise manner. Technology is then used to identify your ‘lazy money’ that isn’t being optimised (such as savings earning low interest) and Lumio will suggest products and services from its independent marketplace. Soon Lumio will have the power to automatically switch the customer to the best product for them, making insights actionable and growing their customers’ money, optimally, on autopilot.
This is a prime example of Open Finance delivering the ability for intelligent and widespread tooling to help customers manage their finances in the most efficient manner.
Open Finance is also helping to bring previously inaccessible financial products to the masses.
Wealth management products, in particular, have been opened up to a broader pool of the population than ever before.
There are a number of robo-advisers in the market that turn existing financial services products on their head by combining low fees with a low barrier to entry. For example, Plum allows customers to begin investing from as little as £1, enabling them to set how much they want to invest and how often. In addition, they provide instant access to savings which is a huge advantage over traditional players who tend to have lengthy divestment timeframes.
Of course, there are dangers inherent in providing greater access to financial products in the absence of greater education. This is clear with investments, which can drop sharply in volatile times, but also with the burgeoning Buy Now, Pay Later market, which is almost unashamedly targeted towards a younger, less well financially educated demographic.
Education is undoubtedly the primary pillar of the Financial Literacy Blueprint. Whilst it’s a far tougher challenge for Open Finance to solve, there are promising developments in the market.
Gohenry, for example, offers a debit card product for children, protected by parental controls, with a clear and purposeful focus on teaching children financial skills.
The product has been well received and it is clearly plugging a huge gap in the market. However, I remain sceptical about whether this will really move the needle for the demographic of young people who most need financial education. The gohenry card will most appeal to parents that would’ve otherwise given their children a financial education of sorts – it’s unlikely to reach disadvantaged children.
As such, financial education needs to start in primary school and needs to be continued throughout secondary school. Every child in the UK should be equipped with the basic knowledge to make informed financial decisions by the time they have the option to leave school at 16. This is a task which the UK government and Gavin Williamson (Secretary of State for Education) need to urgently prioritise.
It’s more than likely that both the large financial services firms and the more recent entrants to the market would be willing to support an initiative like this. There would be great power in an HSBC, Barclays or Monzo working to build relevant, engaging material.
Increasing financial literacy
A lot of work needs to be done to increase financial literacy across the UK. Open Finance is reducing barriers to entry and providing the tools to better manage personal finance, however, more needs to be done to provide foundational financial education across society. I’d like to see this become a priority across the coming years to ensure Open Finance can generate the maximum socio-economic benefits for every person living in the UK.
To learn more about how Open Finance is changing the face of the industry, please read our report – Uncovering the true potential of Open Finance.