On financial literacy: Fintech can be the key to future-proofing the UK economy
The UK fintech sector has been the darling of international finance. Our small island nation’s financial technology sector accounts for over 10% of the global fintech industry and is set to employ 105,500 people by 2030.
UK fintech firms have pioneered new ways of applying for mortgages, defined what it means to be a digital-only bank, transformed how freelance workers get paid, helped consolidate both consumers’ and business’ bank accounts and much more. We are the envy of the world.
In particular, fintech has been enormously successful at transforming the financial lives of younger generations, especially millennials. A recent report from AT Kearney found that one in three millennials now banks with a tech-savvy challenger bank. Undoubtedly, fintech is having an impact on this age group: demystifying a number of areas of retail finance for young people and creating an environment that feels more native to them.
However, while fintech has successfully changed how younger people move money, get credit and pay for their groceries, it could play a much bigger role in bridging the UK’s financial education gap. According to a 2018 study from UCL, when presented with a graph containing basic financial information, more than half of adults in UK and NI failed to interpret it correctly. Moreover, the Organisation for Economic Cooperation and Development (OECD) ranks the UK a middling 15th out of 30 developed countries on teaching financial literacy.
In part at least, this stems from the lack of basic financial education or applied mathematics in schools. Typically, basic financial planning is a skill that is currently left for parents to teach. Parental lessons could be perfectly adequate for many, but for those whose parents are similarly lacking in financial literacy, the cycle can end up repeating itself.
The UK fintech sector is uniquely placed to take on this challenge. Indeed, as a democratising force in society, it has a responsibility to itself and the wider financial sector to take it on. If innovation in the sector can change how we save, spend and invest money, why can’t it also change how we teach people about money and finance? Where parents, schools and already well-established financial institutions might not be able to deliver the level of education needed, fintech can fill the void.
For me, fintech is the manifestation in the financial markets of the information revolution. Whether it’s about internet or social networks, the sharing economy and now cryptocurrencies – it should all be about empowering individuals.
Showing young people how they can generate long-term value from their money is key. Rather than dumbing-down financial concepts like investing or pensions and discarding their complexities – an approach that helps no one – the focus should be on upskilling young people and demonstrating how these can be productive outlets for their money.
Allowing people to ‘play’ the market in a risk-free digital environment can be an effective way of achieving this.
The UK fintech industry has an opportunity to help build a more diverse, future-proofed and forward-looking economy. Not addressing the issue now could lead to a decline in both future talent for the financial services industry and investment capital as financially illiterate younger generations opt to avoid careers in finance and sit on their cash rather than find a productive outlet for it.
UK fintech has already conquered the international finance industry, but maintaining such dominance and reverence in future will only be possible if we start to lay the foundations now and re-engage younger generations.
By Kerim Derhalli, CEO, Invstr