The last 18 months has been anything but normal, however Brits up and down the country have taken advantage of this extra time during lockdown to improve their personal finance knowledge.
We conducted a recent study which uncovered that more than a third of Brits used lockdown to swot up on their financial literacy, with a quarter claiming that their understanding of personal finance products and services has improved.
However, we did discover that there was still a lack basic understanding of financial products and services work when making informed decisions. Our research also highlighted a growing disparity between those wanting to learn and those that mistakenly believe their knowledge is sufficient, with many consumers missing basic financial understanding when borrowing money.
Common personal finance misconceptions
Payment holidays were introduced last March to help millions of consumers take a financial break due to the impact of the pandemic. However, many of the people we spoke with didn’t understand that payment holidays can in fact increase the overall cost of their personal loan.
We also found that the same people incorrectly believed the APR on a personal loan is always higher when borrowing larger sums of money and wrongly assume that representative APR on a personal loan is the same for anybody taking out an identical amount with the same provider.
What’s more, almost half were unaware that applying for multiple credit at the same time could have a detrimental impact on their credit score and reduce their chances of acceptance.
There’s also confusion about a common form of car finance, as more than half of Brits wrongly assume that a vehicle on a contract hire plan belongs to the person taking out the agreement.
Shockingly, data suggests that a third of us do not take time to fully understand the terms of a financial product before signing on the dotted line.
However, the younger generations have taken advantage of this opportunity and got to grips with their finances during lockdown. Half of all the Gen Zs and Millennials that we spoke to said that they used this time to get a better handle on their finances through research and self-learning. Compared to less than a fifth of over 55s, over two thirds of 18–34-year-olds having gained a better understanding of their financials.
Vincent Reboul, Managing Director of Hitachi Capital Consumer Finance said:
“It’s positive that so many people have used time during the pandemic to become financially savvier and encouraging that younger age groups now have a better understanding of consumer finance products.
“But as the survey highlighted, misplaced confidence can lead to common misconceptions about how products work, which is why it’s important to take the time to understand the implications and ask questions. It’s also paramount that financial services providers continue to improve communications on the products and services they offer.”
Five things everyone should know about personal finance
- Understand how to manage and budget their finances effectively
- The difference between APRs and interest rates as well as how they are calculated
- Knowing how secured and unsecured loans work
- The importance of a good credit report and how to maintain it
- How different lines of credit work e.g. Personal loans vs Credit cards