Making Sense of Money: Why Financial Literacy Counts

Financial literacy and your financial plan

We make decisions on our personal finances every day. Some are smaller, like whether to get a takeaway or use what’s in the cupboard for dinner, and others are more significant, such as managing debt or planning for retirement. Yet, despite how often we interact with money, many of us have never received formal education on how to manage it well.  And as the financial landscape becomes increasingly complicated and the cost of living continues to rise, understanding your personal finances and being able to make informed decisions is more important than ever.

Understanding your personal finances better is about managing your money to meet your life goals. That includes earning, spending, saving, investing and protecting. Some of these might feel easier to manage and understand, and others feel more challenging. Identifying where you feel you could use some help can be the first step in advancing your financial aptitude.

The state of financial literacy in the UK

Financial literacy is more than just knowing how to budget or save. It’s about understanding how money works, making informed decisions, and feeling confident about your financial future. But in the UK, many people are navigating this landscape without the tools they need. Only 29% of young people in the UK recall receiving any financial education in school.¹ And nearly four in ten UK adults say they don’t feel confident managing their money.²

Why does financial literacy matter?

Studies have shown that better financial literacy can lead to better life outcomes. Studies show it positively impacts people’s satisfaction with their financial situation, more capable of being able to meet an unexpected financial shock, and more likely to save and plan for retirement.³ Higher levels of financial literacy are also associated with seeking higher quality financial advice.⁴ Those who are more financially literate are more likely to seek professional financial advice. This is also associated with better long-term outcomes for people’s financial wellbeing.⁴

How can you become more financially literate?

One of the most commonly used tests for studies on financial literacy was developed by Professor Annamaria Lusardi and Professor Olivia Mitchell of the Wharton School. They developed what is known as “the big three” and “the big five” tests, which consist of 3 and 5 multiple choice questions respectively. Whilst it is hard to get an accurate reflection of someone’s knowledge from a five-question test, it can provide a rough indicator of a person’s level of knowledge.

Another element of improving your knowledge is understanding the psychological elements of personal finance. Money isn’t just about the numbers, it’s emotional as well. Fear of the unknown can be destabilising, but if we can gain a better understanding of what’s impacting our finances, we can put ourselves in a stronger position to tackle it.

It all starts with curiosity and a willingness to learn. Asking your planner for help with this is a great option. If you are struggling to understand something or don’t feel confident you have fully grasped something, don’t hesitate to ask clarifying questions. They will be able to help you and can even point you in the direction of further resources if you want to learn more. Your planner is there to support you and your financial plan, and with their help you can build habits into your daily life that can also help you improve your financial literacy. Practice makes perfect and establishing savings goals, tracking spending and reviewing your financial plan can help develop your knowledge and confidence.

And the good news is that once you have a decent level of financial literacy, studies suggest that it’s pretty sticky and stays with you. You might need to refresh yourself every few years of some basics, but on the whole studies suggest that once you have the foundation it's pretty solid.

Financial literacy is not about knowing everything. Having a financial planner means you have an expert on hand who is there to support you. But building your knowledge can help you feel confident and improve your day-to-day financial life.

Helping others build financial confidence

Studies suggest that some of our financial habits start very early. People’s habits associated with money may be established as early as age seven.⁵ That’s why it’s important to support financial education from a young age.

Parents and carers can play a key role. Involving children in regular conversations about household finances and giving them an allowance to manage can help establish stronger saving habits they will carry into adulthood.⁶ And financial education programmes that are supported by parents and guardians at home are more likely to have an influence on financial behaviour.⁶ Your planner can also help support you in how to have age-appropriate discussions about financial planning.

Final thoughts

Financial literacy is a lifelong skill. Whether you’re just starting out or planning for retirement, understanding your finances can help you make better decisions, reduce stress, and feel more in control. If you’re unsure where to begin, your financial planner can help you take the first step.

 

This article is designed to provide you with information only. It is not designed to provide you with financial advice. Please seek financial advice if you are still unsure about your options. There may be a charge for this. Remember, tax treatment depends on your individual circumstances and may be subject to change in the future. And the value of investments can go down as well as up, and could be worth less than what was paid in. This information is based on our understanding in November 2025. Aberdeen is not responsible for the information, accuracy and views of external sources.