This edition our guest blog comes from Unbiased, the UK’s biggest selection of truly independent advisers.
The guest blogs during the UK’s first Financial Capability week are to help showcase the great work that numerous organisations are doing to improve the low levels of financial capability across the UK.
To submit a blog on financial capability, please contact firstname.lastname@example.org.
Hands up who thinks they’re a better-than-average driver? Interesting – that’s more than three-quarters of our readers. So either we’ve got a particularly talented bunch out there today, or some of you are stretching the truth.
Most of us over-estimate our competence at things we consider important. Driving is one of these; managing our own money is another. Admitting that we don’t always make the best financial decisions can seem like a weakness. Or we may really feel that we know it all – because we can’t see the gaps in our knowledge.
The annual Value of Advice report by Unbiased has explored why some people choose not to seek financial advice. Surprisingly, it wasn’t the cost that put them off – it was their confidence that they could make the best decisions without any help. Around 40 per cent of those who didn’t seek advice gave this as their reason. However, being at ease with basic money matters isn’t the same as maintaining a detailed knowledge of financial products, or working through a wide range of ‘what if?’ scenarios, in the way a professional adviser does.
Consumers report similarly high levels of confidence in another recent Unbiased report, The Advice Nation. It appears that financial confidence is often inversely proportional to experience – that is, people get less confident the more they understand. People aged 18-34 year olds were seen to have the highest confidence levels, yet they also considered themselves to have the lowest risk tolerance (when in fact risk tolerance typically decreases with age) – indicating that they didn’t grasp this concept very well. Meanwhile, older people became increasingly aware of their ignorance in key areas, and more likely to seek financial advice.
The Advice Nation report also surveyed 500 private investors, 68 per cent of whom said they were comfortable making their own financial decisions. Yet while 56 per cent said their goal was ‘long-term growth’, nearly 60 per cent wanted their money to be ‘safe from risk’. Given that some risk is usually necessary for achieving long-term growth, it appears that many investors still do not have a good understanding of this relationship.
So what about the ordinary consumer? The fact is, finances can be complex – so complex that many people may give up trying to understand them and just go with what feels right. This may give them a sense that they know what they’re doing, when in reality they are trusting in guesswork, tips from friends and family, and luck.
True confidence, on the other hand, begins with admitting that you don’t know it all. Most of us are simply too busy pursuing our own lives and careers to gives our finances the attention they deserve, even if we have the expertise. So it is worth reminding ourselves that there are experts out there who can do it for us. Not everyone will need to seek independent financial advice – but there are huge numbers of people who stand to benefit from it. You can find the UK’s biggest selection of truly independent advisers at unbiased.co.uk.