Oliver Crawford

By Oliver Crawford

In Februrary 2024, Fairer Finance asked 10,000 people - via the pollster Opinium - to rate their confidence managing money on a scale from 0 (not at all confident) to 10 (completely confident).

This is an important question, since it allows us to gain insight into which groups have lower or higher confidence with money, which has important implications for providers.

What did we find?

First, most people rate their confidence managing money fairly highly. The average response was 7.5 out of 10, while 10 was the single most common response.

Second, out data suggest that as people get older, their confidence manging money increases.

According to our survey, teenagers are the least confident age group, while those over-80 are the most confident.

This is likely because young customers are less experienced when it comes to financial products, whereas older customers have had many years to familiarise themselves with the workings of relatively complicated products like credit cards, mortgages, or insurance.

Another finding was that men rate their confidence with money slightly higher than women. This result is consistent with other surveys.

We also found that those with higher household incomes are more likely to rate their confidence managing money highly.

There could be a degree of over-confidence at play here. People with high incomes have greater room for error, since they are to some extent cushioned from the consequences of bad decisions. This might lead them to over-rate their ability to manage money because the stakes are relatively lower.

It’s also possible that confidence with money is bound up with someone’s own financial situtation. So, if they have a higher household income, that could translate into a feeling of greater confidence, since it’s easier to be confident when your own finances are looking positive.

How does the use of financial products vary among low and high confidence customers?

In our survey we asked cutomers which financial products they currently used.

Current accounts are used consistently across the spectrum of confidence managing money.

Buy Now Pay Later is somewhat more commonly used among those with low confidence. This could be because it’s more popular with young customers, or because it’s a more straightforward way to borrow money than using a credit card.

Credit cards and savings accounts are much more common among those with higher levels of confidence managing money. This might be because high-confidence customers have more money available for savings - or better credit scores. On the other hand, it could also be down to the fact that those who are more confident with money are better able to take advantage of the deals offered by these products, such as higher interest rates on savings balances or cashback and rewards on credit card spending.

When it comes to credit cards, those who don’t pay off their balance every month (revolvers) are noticeably less confident with money than those who pay in the balance in full every month (transactors).

It’s also the case that customers of credit card providers that focus on rewards (such as American Express) are more confident with money than those who use credit cards designed to build credit (such as Capital One).

Again, this could be because high-confidence customers have better credit scores, meaning they can access reward cards. If they have higher household income, on average, they are likely to also be in a position to more easily clear their balance each month.

However, it’s also possible that the customers’ confidence with money is influencing their outcomes. So those with greater confidence understand the downsdies of revolving a credit card balance better and so are less likely to do it.

What are the implications for providers?

All financial products will have at least some customers with low confidence managing money. That means that being as clear as possible when it comes to explaining important terms that customers might miss or misunderstand is incumbent on all providers.

One implication of these data, though, is that providers should take special care not to assume too much background knowledge on the part of customers from segments that are more likely to have less confidence managing money, such as young people.

When you work in financial services, it's easy to forget that many people are uncertain about what certain financial terms mean. A 2021 survey by Uswitch found that 78% of people said they 'understand exactly' what a pension meant, falling to 61% for a stock, and 23% for AER. (Whether they did understand these terms is another question.)

In light of the Financial Conduct Authority’s Consumer Duty - which has brought the importance of customer understanding into focus - it's worth providers thinking about whether any of their products are mainly targeted at young customers (an example would be telematics car insurance) or customers with relatively lower incomes (such as credit builder credit cards).

For these products, providers should consider how much background knowledge their online journeys and communications assume. If certain terms are used in the journey or the communications that might be difficult for inexperienced customers (such as AER), it's good practice to make sure there are explanations available (for example through tooltips) that use plain English. Worked examples and even diagrams/infographics are also useful tools for explaining terms.

At Fairer Finance, we’ve worked with many companies to help them improve their communications and their online journeys. I hope that we can reach the point where everyone - regardless of their confidence with money - can understand the costs and benefits of financial products, because the information has been presented to them in a clear, timely and comprehensible way.