‘Financial illiteracy’ sees consumers lose out

A new report from the National Association of Citizens’ Advice Bureaux (NACAB) has highlighted how consumers are losing more than £10 billion-a -year through the purchase of financial products unsuitable for their needs.

The phenomenon, which NACAB has branded ‘financial illiteracy’, arises largely as a result of high pressure sales techniques which exploit the general public’s lack of knowledge about financial issues. Customers are persuaded to part money for insurance packages, credit cards and warranties that are of no real individual benefit to the purchaser, with many people failing to read the small print when applying for such services.

NACAB has called for a government campaign to raise awareness of the situation, and to outline the common traps that consumers fall into when applying for credit or store cards, considering insurance terms or weighing up the worth of extended warranties.

NACAB Chief Executive, David Harker said: “Dramatic changes in the financial services market over the last 25 years mean that from their teenage years through to their deathbed, people now have a bewildering number of financial choices to make and responsibilities to exercise.”

The findings follow the recent decision by the Financial Services Authority (FSA) to crack down on misleading use of performance data when advertising investment products.

Among the watchdog’s proposals were the introduction of a statement stressing that past performance should not be taken as representative of future growth – with some critics calling for the practice to be banned completely. (CL)