The Financial Services Authority estimates the cost of the pensions debacle alone to be about £11.8bn. Confidence in the industry is at an all-time low.
Now, some fear a third scandal is on the way as the level of indebtedness in the UK recently hit the symbolic £1 trillion mark. Concerns about lending practices are front-of-mind and with the MPC raising base rate to control the housing market, fears that people have been encouraged to over-commit are widespread.
Calls for responsible lending have never been louder. The need for clearer information and greater sharing of customer data is well documented and progress has been made. Lenders argue that a credit agreement is a contract between two parties and thus responsibility should be shared. Herein, however, lies the crux of the problem.
An NOP survey commissioned by the FSA reports that a third of all British adults prefer not to think about planning their finances, over a quarter think they are not good at managing their money and two thirds say they would be more confident about dealing with their personal finances if they had learned more about the subject at school. With one in four people suffering from numeracy or literacy difficulties, a significant proportion of the population simply does not have the skills to make good financial decisions. So how can they be held responsible for the important decisions that they take?
Recognising this the FSA, through its Strategy to Build Financial Capability in the UK, is working to improve access to financial education, information and advice. As a better informed and educated public will make more knowledgeable financial decisions, scandals will become a thing of the past and confidence in the sector will be restored.
There is a strong political will to improve financial capability. The benefits are widely acknowledged and while everyone is in agreement that something must be done, the question of who pays looms large and threatens to slow progress. Rather than asking if we can build financial capability – of course we can – the real question remains: are we willing to invest now to prevent future scandals or will it take one more before we feel compelled to act?
Shirley Woolham is financial health business manager at CPP Group