Money management

6 ways to boost your financial literacy (and your mental wellbeing)

01 April 2021 | Posted by Frankie Jones

As a nation, we’re great at a lot of things. The UK has produced some of the biggest names in music, from the Beatles to Ed Sheeran; we’ve got one of the best capital cities in the world; the world has us to thank for inventing football, and our beloved NHS isn’t bad either. Financial literacy, however, is not our forte.

Our latest report, The Claro Mental Health Project, found that the UK lags behind other countries when it comes to our levels of financial literacy. According to the OECD, we rank 15th out of 30 countries, with average financial literacy scores 12% lower than France.

It’s time to turn that around. The link between money and mental health is long-established, so improving our financial literacy is a no-brainer when it comes to boosting our wellbeing.

With that in mind, here are 6 things you can start doing today to avoid the UK’s most common financial-planning pitfalls.

1. Start a budget

39% of UK households have no budget to track their incomings and outgoings. If that sounds familiar, don’t worry – creating a budget is easier than you think.

It’s the foundation of good financial literacy, helping you to develop a proactive plan, whether that’s to build a protective financial cushion or save or invest with a longer term goal in mind.

Make sure you have all your expenses and outgoings to hand (such as any recurring bills, mortgage or rent payments, food shop receipts etc.) Once you know how much you have going out of your account each month (and presumably you know how much is coming in) then you can work out the difference. The difference is how much you have to play with each month, for example, to spend on things you enjoy and to save towards your future.

A good rule of thumb is the 50/30/20 budget. According to this rule, you should aim to spend £50 of your income on your needs (like housing payments, food and transport), 30% on the wants (such as holidays and new clothes) and 20% on paying off debts or saving.

Use Claro’s budget planner to get started.

2. Shop around when selecting financial products

We found that fewer than half of UK adults compared options from different providers before choosing their most recent financial product. Young adults were the worst offenders, with 74% failing to carry out proper due diligence of the products on the market.

Whether you’re looking for a new credit card or insurance provider, shopping around takes minutes and could save you hundreds of pounds a year. In this case, time is – quite literally – money.

Searching for the best deal could also leave you with a bit more legroom when you’re setting your budget, too. If you can find a cheaper version of the things you need, you’ll have more money to spend on the things you want. It’s a win-win, right?

3. Take a longer-term view to improve your financial literacy

When it comes to financial literacy, over a quarter of UK adults (28%) admit to living for the day and letting tomorrow take care of itself. In some areas of life this might seem an attractive prospect, but it’s potentially disastrous when it comes to finances. You don’t want to wake up at 70 years old with just a few pounds to your name, do you?

With only 34% of those aged between 25 and 34 years old holding a pension (either a workplace or private), this is a lesson it pays to learn at a younger age. But it’s never too late to start.

Putting money aside, whether it’s for a rainy day or retirement, is one of the best things you can do for future you. If you know you’re not going to need the money for a while, you could lock it up in a fixed-term savings account – these usually offer higher interest rates than easy access accounts.

And investing is ideal for long-term goals, such as buying a home or retiring. That’s because the longer your money is invested, the more likely it is to ride out any bumps in the market and grow over time.

To find out which savings accounts and investment types are right for you, download Claro and book a free call with one of our trained Financial Coaches. Start taking care of tomorrow, today.

When investing, your capital is at risk.

4. Practise delayed gratification

Remember when, as a child, you’d raid the cupboards in search of a snack, only to be told by a parent to wait for dinner or have an apple instead?

There’s nothing worse than putting off the thing we want right now until later. But when it comes to our money, it’s never been so important

Unsurprisingly, 27% of UK adults find it more satisfying to spend their money than have a long-term plan. This rises to 38% for those under 24 years old, who are the least likely to hang onto cash for longer term gain (a finding that supports the calls for greater curbs on ‘Buy Now Pay Later’ products).

While practicing delayed gratification might not come naturally to you, there are ways to make it easier for yourself.

For example, start off small by setting yourself a task so easy you can’t say no, or choose one thing to improve by just one percent each day. You might find it easier to limit temptations, so if you’re prone to online shopping, try removing the ‘auto save’ function on your phone or laptop that handily stores your card details if you want to add some friction into the buying process.

5. Give yourself financial goals and stick to them

Only 1 in 5 of UK adults feel strongly about the importance of having a long-term financial goal. And this is a great step towards improving your financial literacy. But whether you consciously think about your goals or not, it’s likely you have them. Maybe you want to buy a house on the coast, or get out of debt for good or start your own business.

Whatever you’re hoping to achieve in life, planning ahead is the key to shaping your future choices. Without a plan, it’s difficult to keep your eyes on the prize and it’s likely you’ll fall out of those all-important saving habits. As they say: failing to plan is planning to fail.

Using Claro, you can book a one-to-one call with an expertly trained financial coach who’ll help you set your goals and create a plan to work towards them. They’ll suggest whether saving or investing could help you reach your goals sooner, and you’ll get to see exactly where your hard-earned cash is going with our spending analysis feature.

When investing, your capital is at risk.

6. Saving can help to boost your financial literacy

If you’re already thinking “pffft, I’m not rich enough to save”, hear us out.

18% of UK adults admit to having saved no money in the last 12 months. Using a budget to create a monthly surplus, no matter how modest, is key to gradually improving your financial security. See, we told you making a budget was important!

In most cases, there are always things you can cut out in order to save more money. Whether that’s ditching your daily takeaway coffee or swapping to a cheaper brand of loo roll, the little things really do add up.

If you don’t think you’re restrained enough to move money out of your current account when you get paid, there are plenty of apps designed to do the legwork for you.

These are just a few steps you can start doing today to build your financial literacy skills and protect your mental wellbeing. Check out Claro’s handy guides and glossaries to keep learning how to use your money to create the future you want.

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