How much is bad maths costing Britain?
We’ll send you a myFT Daily Digest email rounding up the latest Financial literacy news every morning.
Here’s a number that should concern us all — about 20m people in Britain have poor numeracy skills.
It is estimated that just under half of working-age adults in the UK have numeracy skills lower than that expected of an 11-year-old child, causing big problems in the workplace.
Dame Sharon White, chair of John Lewis, made headlines last month when she complained that the retailer had been forced to give basic numeracy classes to its younger staff.
However, this also has a massive impact on how well people manage their personal finances and their ability to comprehend household bills.
Could changing the way financial information is presented to customers make a difference? The short answer is yes.
This week, a research study from Plain Numbers has shown that making small tweaks to the way bills were presented doubled customer comprehension, on average.
The social enterprise, an offshoot of the National Numeracy charity, conducted controlled trials with about 5,000 customers of companies including Direct Line, Atlanta Insurance, Octopus Energy, Thames Water and ClearScore, the credit reference agency.
Half of customers received their usual bill, but the other half were sent an optimised Plain Numbers version (think Plain English — but for numbers).
Both groups were then asked five questions to gauge their understanding. For example, the insurance customers were quizzed about the impact of paying for a policy monthly (where interest is charged) versus paying annually (where it isn’t).
Similarly, customers comparing balance transfer deals were asked to pick which credit card would enable them to pay off their debts soonest.
The upshot? Across the five trials, Plain Numbers customers were nearly twice as likely to answer 4 out of 5 comprehension questions correctly (47 per cent versus 24.6 per cent).
So what kind of magic number wand did they wave?
Essentially, they removed jargon and unnecessary numbers to make financial information less intimidating and more user-friendly.
The organisation quotes the historian Yuval Noah Harari: “Humans think in stories rather than facts, numbers or equations — and the simpler the story, the better.”
The “story” is what consumers are ultimately trying to achieve. For those comparing balance transfer deals on credit cards, the simplest way to tell the story is: “If I pay off £X every month, I’ll be debt free by this date, and save £Y in interest.”
Communicate key points that way and customers can concentrate on the bottom line without the distraction of trying to calculate percentage fees or the difference between a 19-month deal and a 23-month one.
As well as boosting comprehension, the simplest story can also soothe worries. For energy customers, Plain Numbers rounded payments to the nearest pound (thus removing 14 numerals from the page) and used simple headlines to summarise the details: “Overall, you used £79 more energy than you paid for this month, but that’s OK — it’s winter, and for most people it evens out over the whole year.”
In all cases, the information mandated by the Financial Conduct Authority still appeared on bills, but was shunted further down the page.
The five companies who took part in the trial have all committed to embedding the approach and the group now hopes to work with more organisations to do the same.
While the results of the initial trial are impressive, the challenge ahead is considerable. Even on the Plain Numbers version of the bills, more than half of consumers (53 per cent) couldn’t correctly answer four out of five comprehension questions.
That’s clearly better than the 75 per cent who failed to do so using the standard bills — but echoing Dame Sharon’s comments on the education system, poor numeracy isn’t something that can be completely “designed out” of financial products and services.
Second, the trials also showed that six out of 10 participants thought they had understood the information presented to them, although the comprehension scores above show many clearly hadn’t. This “perception gap” is where the potential for bad financial decisions and even mis-selling could occur, so any steps to reduce it would be worthwhile.
Struggling with numbers is a national problem, says Mike Ellicock, the founder of Plain Numbers, but boosting engagement requires unpicking a complex mix of skills, attitudes and behaviour that convinces people that they “can’t do numbers”.
He believes much of this stems from an aversion to maths in school.
“The main thing maths education does is put people off numbers,” he says, commenting on how the curriculum has become “far removed from decision making in the real world”.
Its initial research has been praised by the Bank of England and the FCA, which believe it has much wider applications. But I wonder how it might be received by financial firms?
I have long argued in this column that consumer inertia and lack of understanding are key drivers of profit for the financial services industry.
The FCA has cracked down on some of the most egregious examples, including the “loyalty premium” paid by customers who fail to shop around for the best deal on their insurance (not doing so has cost 6m policyholders an estimated £1.2bn).
It has also demanded remedies for credit card customers in persistent debt. Making the minimum payment every month might feel cheap, but it’s hugely costly. Borrow £3,000 aged 21, and you’ll be almost 50 by the time the debt is cleared — and have paid an additional £4,000 in interest.
But what about mortgages? A recent Habito study of 2,000 homeowners found that more than a quarter had rolled off a fixed-rate mortgage on to their lender’s standard variable rate (SVR), paying average interest of 3.5 per cent when the best rates are less than half of this. The difference was costing some of them over £4,000 per year.
Worse, a further 18 per cent of respondents confessed they didn’t know what rate they were paying — and one in 10 of the sample didn’t have a clue what the term “SVR” meant (clue — it’s shorthand for the “rip off” rate).
I am sure the Plain Numbers approach could work wonders for customers here — but would any mortgage lender volunteer?
Ellicock says customers who understand what they’re buying and feel it is fair value are more likely to complete purchases and remain loyal. If they better understand their bills, they might be less likely to call customer services, which could reduce firms’ costs.
Early evidence suggests it’s the most vulnerable consumers who stand to gain most from a clearer approach. As ESG (environmental, social and governance) concerns rise up the boardroom agenda, this could convince directors and shareholders of consumer-facing companies that a more radical shift is needed.
I’d like to think the plain numbers approach won’t stop at consumer bills, and in time could extend to DIY investors.
From high fees to the mis-selling of high-risk investments and outright scams, the potential for financial harm is vast. Pensions freedoms have made it possible for millions to gain early access to their retirement savings, often without any guidance from a professional adviser.
As well as communicating the facts more clearly, should providers ask some simple comprehension questions before letting people make potentially wealth-destroying decisions? I would welcome readers’ answers to this costly conundrum.
Claer Barrett is the FT’s consumer editor: firstname.lastname@example.org; Twitter @Claerb; Instagram @Claerb
Click here to find out more about the FT’s Financial Literacy and Inclusion Campaign, or email email@example.com