Five reasons we don’t talk about money.

A 10 to 20-minute read, depending on your speed.

This is the first of two Insights for anyone who struggles to talk about (and deal with) personal money matters.

And that’s most of us from time to time!

Here, we’ll explore the first five of ten reasons we might find it hard to talk about money with close friends, family, or a financial professional.

You’ll find the second five reasons here.

We doubt these ten reasons are exhaustive, so if you struggle to have valuable conversations about money for these or other reasons, we’d love to hear from you.

This is just one of many Insights we’ll offer on what really matters for making good decisions about your money.

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Now, let’s look at the first of these five reasons we don’t talk about money.

Reason 1. We don’t understand the basics

Our financial literacy problem is very well known, and it’s global, too.

The S&P Global Financial Literacy Survey tests 150,000 adults from 148 countries every few years with questions in four areas like these.

On risk diversification

Suppose you have some money to invest.

Is it safer to put your money into just one business or into multiple businesses or investments?

On inflation

Suppose over the next ten years, the price of everything you buy were to double. If your income also doubled, would you be able to buy less than you can buy today, the same as you can buy today or more than you can buy today?

On numeracy (around loan interest)

Suppose you need to borrow 100 US dollars. Which is the lower amount to pay back: 105 US dollars or 100 US dollars plus three per cent?

On compound interest

Suppose you put money in the bank for two years, and the bank agrees to add 15 per cent per year to your account. Will the bank add more money to your account in the second year than in the first year, or will it add the same amount in both years?

Suppose you had 100 US dollars in a savings account, and the bank adds 10 per cent each year to the account. How much money would you have in the account after five years if you did not remove any money from the account: $150, more than $150 or less than $150?

How do you feel about those questions?

If you found them hard, don’t worry; you’re far from alone.

According to the survey, being financially literate means correctly answering three or four of those questions.

Yet, in the last survey (from 2014), only one-third of adults (worldwide) passed that test.

Unsurprisingly, adults in developed (and more equal societies) tend to fare much better than those in under-developed and unequal countries.

Three Scandinavian Countries (Sweden, Denmark and Norway) topped the results table, with 71% of adults found to be financially literate. 

In contrast, less than 20% passed the test in less developed countries, with the lowest result in Afghanistan, being just 14% (less than 1 in 7 adults)

Financial literacy rates vary enormously, though, even among developed countries, as we see here:

• Sweden, Denmark and Norway 71%
• Israel 68%
• United Kingdom 67%
• Germany 66%
• United States 57%
• France 52%
• Japan 43%
• South Africa 42%
• Portugal 26%

Does this mean things are OK in the UK or the USA?

No, not at all.

Other research in the US suggests that financial literacy levels are going backwards.

We also have dramatic examples of the problem in the UK.

For example, a 2015 (Ipsos Mori) survey asked people various questions about money, including this one on pension planning:

‘What pension fund would you need to provide a retirement income (including your state pension) of £25,000 a year?’

How would you answer that?

The range of answers given was quite extraordinary.

• Over half of those surveyed thought a fund of less than £150,000 would be enough.
• One-third thought a fund of £50,000 would suffice.
• And one in eight people thought a fund of £15,000 would do the job!

The correct answer, in 2015, was about £300,000! And, if you wanted that income to rise with inflation each year, you’d need a lot more than that.

For information: Updating the target pension in that question to today’s money terms, and taking account of increased levels of state pension and higher interest rates since 2015, would still mean you’d need to target a fund of nearly £300,000.

So, it seems we’re not as financially literate as the S&P survey suggested in 2014, and while the Mori Poll was in 2015, our pension knowledge is not progressing either.

Fast-forward to 2023, and in Boring Money’s Pension Report (based on 4,000 UK adults), we learn that many people don’t know how their pensions are invested, between shares, bonds or property, for example.

But more shockingly, we learn that:

• One in five workplace pension savers don’t realise their pension funds are invested at all.
• And 92% (11 out of 12) of those surveyed said they don’t feel confident about taking basic actions on their pension plan, like switching funds or changing the amount they pay in.

Why don’t we understand money?

Financial literacy is an enormous issue, and we only have room to touch on it here.

In short, however, we see four causes of this problem.

First, we don’t have excellent numeracy skills in the UK (or the US), and you need some number skills (and to know what pension income rate to assume) to convert a target pension income into a required pension fund size – as in that question above.

Similarly, if you want to estimate the future value of a lump sum investment (or series of investments) over ten or twenty years, you need to know the formula to put into your spreadsheet.

Alternatively, you must know which online calculators are reliable and use sensible assumptions.

Not all of them do.

The second reason we struggle with questions about money is that (in the UK, at least) the basics are not consistently taught in schools. 

Yes, some basic money management skills are taught in some schools today, but according to financial education teachers, what gets taught is a postcode lottery.

And the chances of children being taught about money are currently falling, not rising!

Also, long-term financial planning topics are not taught in schools or even in business or economics degrees, which might explain why most people don’t have a clue about pensions.

So, as with other ‘life skills’, we think our schools and colleges could be better.

The third significant cause of confusion around money is Government policy.

The government defines the taxation and other features of our financial products (and strategies)—like whether government bonuses are added to our savings and any input or age limits for paying in or accessing our money.

The constant tinkering (by all governments) with the taxation of savings, investments, and pensions makes it hard to know which products are best for you.

We want to make this product comparison job easier for you.

So, we offer another series of Insights to help you decide which money box (or strategy) is best for you. And that’s a decision best made before you put your money into that place!

Click here to learn all about that. 

Finally, we think financial firms (banks, insurers, fund managers and financial product providers) must bear some of the blame for personal finance being so hard to understand.

We believe these firms need to create better (more engaging) content to answer your key money questions in generic terms and stop tilting their messages to sell you their products before you know what you’re buying!

Of course, we know that’s a big ask, so we offer these insights to help you with that. 

Reason 2: Few people know anything about financial planning!

If a new coffee shop opened in your neighbourhood, you’d have a rough idea of what products it would offer, in addition to cakes and sausage rolls.

But what if a financial planning firm opened in your area: could you describe its services?

Most people could not unless they’d worked with a good financial planner.

The evidence is clear and shown here, about who searches for what (financial) services online.

For financial advisers, planners and coaches

This educational Insight is one of many we’ve created for you to use under license in your business to help more people make better financial decisions – and see the value of professional advice.

You can brand these licensable insights to your business style and add your own firm’s calls to action.

If you have any questions at all, please email me at hello@paulclaireaux.com