More than half of Brits don’t understand the impact of inflation on savings, according to research from Aviva.
The findings revealed that fewer than half (44%) of those surveyed understand the impact of inflation on savings and just over a third (37%) understand compound interest on savings.
The survey asked questions about people’s understanding of some basic financial principles, including the impact of inflation and compound interest.
Only 44% of the respondents correctly identified the buying power of money when savings interest rates and inflation rates are taken into account. Among those who described their financial knowledge as very good or moderately good, only half got the answer right.
A lasting memory
However, previous experience of high inflation may have had an influence: those over 65 who described themselves as not very confident or not at all confident about their knowledge got the answer right more often (31%) than the confident 18-24-year-olds (30%).
The impact of compound interest on savings was correctly understood by fewer than four in 10 (37%), and by less than half (45%) of those describing themselves as very or somewhat confident.
Sam Mirehouse, managing director at Aviva Financial Advice, said: “While it is encouraging that nearly six-out-of-10 people consider that they have good financial knowledge, the figures also suggest that people’s confidence isn’t always justified.
“If someone thinks they have good financial knowledge, they may be less likely to seek advice or check the facts – yet our research shows that even those who describe themselves as confident are getting these facts wrong on a regular basis.
“Understanding the impact of compound interest or the way inflation can eat into the buying power of our savings, are basic building blocks for making good financial decisions. But our research showed a significant proportion of consumers are not clear on the difference they can make.”
