The Financial Services Authority estimates the cost of the pensions debacle to be in the region of £11.8 billion. Confidence in the industry is at an all-time low.
Against this background some fear a third scandal is on the way as the level of indebtedness has broken through the symbolic £1 trillion barrier for the first time. 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 becoming widespread.
The 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. The lenders also argue that a credit agreement is essentially a contract and responsibility should be shared between the signatories. And herein lies the crux of the problem.
An NOP survey commissioned by the FSA reports that one third of all adults prefer not to think about planning their finances, over a quarter think they are not good at managing their money and two thirds would be more confident about dealing with their personal finances if they had learned more about it at school. With one in four people suffering from numeracy or literacy difficulties, a significant proportion of the population does not have the skills to make good financial decisions – so how can they be held responsible for the important financial 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 political will to improve financial capability. The benefits are widely acknowledged and whilst everyone agrees 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 in the UK – of course we can – the fundamental question remains unanswered – are we willing to invest now and prevent further scandals or will it take one more before we act?
Shirley Woolham is financial health business manager at CPP Group