Many young adults have been using the past year to improve their personal finance knowledge, a new survey suggests.
But despite the positives, some young adults still lack an understanding of financial products and services which could help them to make informed decisions, according to the survey by Hitachi Capital UK.
Around half (51%) of 18-34-year-olds improved their financial literacy during the lockdowns, with two-fifths (42%) claiming that their understanding of personal finance products and services had improved.
More than half say they’re now confident in their knowledge of financial products and services.
But the research also found some knowledge gaps.
For example, two-thirds (66%) did not realise that taking a personal loan payment holiday could increase the overall cost, with interest still building up.
Misconceptions around annual percentage rates (APRs) are also widespread, with 30% of 18-34-year-olds incorrectly believing the APR on a personal loan is always higher when borrowing larger sums of money. In reality, the APR can sometimes be lower for borrowing larger amounts.
A quarter (26%) in this age group also wrongly assumed that representative APR on a personal loan is the same for anybody taking out an identical amount with the same provider. However, the APR someone is offered may not be the same as the representative rate – it could potentially be the same, higher, or lower, depending on personal circumstances.
Over half of 18-34-year-olds surveyed were unaware that applying for multiple credit at the same time could damage their credit score and reduce their chances of acceptance (53%).
What’s more, the research found that 8% of millennials and those in generation Z don’t take time to understand the terms of a financial product before signing a personal finance agreement, the survey of 2,000 people across the UK in April found.
Vincent Reboul, managing director of Hitachi Capital Consumer Finance, says: “It’s positive that so many people have used this time during the pandemic to become financially savvier, and encouraging that younger age groups now have a better understanding of consumer finance products.
“But as the survey highlighted, misplaced confidence can lead to common misconceptions about how products work, which is why it’s important to take the time to understand the implications and ask questions. It’s also paramount that financial services providers continue to improve communications on the products and services they offer.”
