Poor financial literacy amidst the UK's Mortgage crisis

Major lenders including Barclays, HSBC, and TSB have reduced their interest rates on new fixed mortgages, offering a glimmer of hope to borrowers. However, despite these cuts, the cost of new deals remains drastically higher than what many Brits have previously experienced.

The latest industry data has revealed a substantial rise in the number of homeowners struggling with repayments, with mortgage possession claims in England and Wales up by 28% in the first quarter, compared to the same period last year. While expectations of a Bank of England rate cut in June may influence future mortgage rates, the current environment continues to pose substantial financial challenges especially for millennials and Gen Z.

According to exclusive data from Eligible, the legacy of poor financial education in schools has led to young adults reporting themselves as the most vulnerable generation amidst the ongoing cost-of-living crisis.

Payment letters

Eligible, the UK’s first AI platform used by lenders to support customers through tailored financial communications, in a nationally representative survey has found that almost one-quarter of 18-24-year-olds feel confused by the correspondence they receive from their bank, far above the national average of 12%. Whilst almost one- fifth of older millennials disregard missed payment letters as they do not understand the language used by banks. These figures imply an inter-generational element to the problem of poor financial literacy, a phenomenon set to continue in light of research from the Social Market Foundation, which found that just 14% of schoolteachers felt confident navigating the field of financial education.

The consequences of this have already resulted in detrimental outcomes for young people across Britain, with 18% of 18-24-year-olds reporting that they have already encountered permanent implications to their spending due to a lack of awareness of their financial situation. Emotionally, poor financial literacy can reinforce a cycle of shame and stigma, with Eligible’s poll revealing 25% of Gen Z and Millennials claiming that communication with their bank has worsened their mental health.

Level of understanding

The advent of new technology, particularly artificial intelligence, can allow banks to “break the cycle” of financial exclusion, through communicating with customers on an unprecedentedly personal level – tailoring their communication style to the unique needs of customers from a variety of backgrounds. The overarching aim being the facilitation of a proactive, two-way communication between banks and their customer base.

What AI can do today is interact with customers and measure the level of understanding of their existing product before providing bespoke financial expertise. Based on this, we can start to form views on the likelihood that they could struggle to meet their payments.

AI can be used to detect how well people understand their financial product and use this data to spot vulnerable customers in order to better educate and support them.

AI has the power to transform customer support from a reactive relationship to a proactive one. Instead of banks providing support only when the customer asks for it, AI can detect those who are likely to need assistance and proactively engage with them, fostering education and active dialogue.