A new study has found a direct correlation between understanding of inflation and financial resilience, with those demonstrating a clear understanding of inflation more likely to be financially stable than those who don’t.
Additionally, individuals who claim to understand inflation, yet make erroneous claims, are found to have even lower financial resilience.
The study, part of the new HL Savings & Resilience Barometer, also revealed a link between knowledge of interest rates and financial stability.
Those who answered a question about interest rates correctly were more likely to be financially secure than those who answered it incorrectly.
These findings highlight the importance of financial education. An earlier survey by Opinium for HL in May revealed that 13% of respondents learned about inflation after they turned 30, and 15% admitted they never learned about it. As for interest rates, 9% learned about the topic after they turned 30, and 11% confessed they never learned about it.
Sarah Coles, head of personal finance at Hargreaves Lansdown, underscored the implications of these gaps in financial knowledge: “Inflation ignorance and rate confusion take a serious toll on our financial resilience.
“They make us less likely to be on track with everything from savings to pensions and investment.
“At a time when inflation is sky high and interest rates are rising, both play a major part in our financial lives.
“It means millions of people risk making bad decisions because they’ve never had a chance to learn about either.”
The barometer also shows that those who understand inflation are more likely to have emergency savings worth at least three months of essential expenses. 70% of this group reported such savings, compared to just 43% of those who answered the inflation question incorrectly.
This same group is also more likely to be on track for a moderate retirement income, at 36%, compared to 23% who didn’t know and 10% who got the answer wrong.
Moreover, people who comprehend interest rates are more likely to be financially secure. 68% have enough emergency savings, compared to 49% of those who got the interest rate question wrong.
They also have better pension prospects, with 45% on track, far ahead of the national average of 39% and significantly above those who answered incorrectly, at 14%.
