When it counts: numeracy and financial literacy in later life
I was recently invited to give oral evidence to the House of Lords Select Committee on Numeracy for Life at a session focusing on the needs of older adults.
I focused particularly on the potential role of numeracy in protecting financial resilience and wellbeing in later life, through its role in financial literacy: the knowledge, skills, attitudes and behaviours necessary to achieve financial wellbeing.
For a growing number of older adults, retirement brings a surge in financial complexity. Whether claiming benefits such as Pension Credit or Attendance Allowance or navigating tax outside PAYE, they are often required to complete unfamiliar administrative tasks and interpret opaque rules. Foremost amongst these is the ‘decumulation’ decision – making choices about when and how to access the retirement funds that they have accumulated over their working lives. CHASM research shows that, for some, there is a risk of falling foul of the very human tendency to fear losses (‘loss aversion’) which can lead to them withdrawing pension pots and holding their money as cash. But the perils of making mistakes during the decumulation challenge is only one part of the picture. Most people face a step-down in monthly income on retirement, leaving some financially vulnerable. This is most likely to affect women, who have significantly lower levels of pension wealth, on average. Reduced inflows can also take their toll psychologically, leaving even retirees with relatively healthy incomes feeling cash poor and reluctant to spend for fear of outliving their money.
Financial resilience can also erode quickly. Fraud, caring responsibilities, bereavement, and extended family demands can all deplete resources, particularly without opportunities to top-up income through additional work. Meanwhile, some costs may increase: some older people find that their insurance premiums go up, or miss out on discounts aimed at encouraging people to shop or transact online or buy in bulk.
All of this suggests that people are likely to need a high level of financial literacy and the confidence to apply it to new challenges as they age.
On paper, levels of financial literacy appear relatively high by retirement, although they fall again in later life. However, looking closely at such measures highlights an important caveat. Current assessments typically assume that financially literate individuals exhibit behaviours such as active saving, forward planning, and debt avoidance. Yet in later life, spending down assets, realising long-held plans, and accessing reverse mortgages may be entirely appropriate even though they are rarely mentioned in national studies. This is not just semantics. If surveys are measuring the wrong things, they might also be overestimating people’s ability to act in their own best interest, with important implications for their wellbeing.
Furthermore, as the OECD PIAAC study shows, levels of numeracy depend not only on foundational education but also on informal learning and the opportunity to practice; it is very likely that this is also true for financial literacy. Routine tasks such as paying for goods or following a recipe become second nature for most people, even if they are ‘uncomfortable’ with numbers. Workarounds such as rules of thumb, informal advice, or digital tools such as calculators or AI are also used to simplify tasks requiring calculations. But the various new, complex decisions that occur later in life require the application of high-order numeracy and financial literacy skills. The outcomes of such decisions may be uncertain, creating an element of risk. Clearly, “learning by doing” is not an option in such circumstances.
However we look at it, numeracy and financial literacy are no match for the complexity of some of the decisions that people are likely to make in later life. They are invaluable when assessing the quality and relevance of advice given, but to ensure financial wellbeing for all, people also need directing towards solutions that are right for them. This means designing systems that work with, rather than against, the realities of ageing. The following would help:
Process simplification: Streamline benefits and tax processes and make greater use of administrative data to automate or pre-fill claim forms.
Strengthen and automate support for carers, people with power of attorney, and others making decisions on behalf of older people.
Improve access to tailored advice and guidance: Expand tailored, affordable financial advice and guidance that takes the time to work through complex financial and relational factors and is designed to be understandable even for people with low levels of numeracy.
Reduce age-related penalties: Address pricing structures that disproportionately disadvantage older consumers, particularly in insurance and digital access.
Delivering these changes will require coordinated action across government, regulators, industry and the voluntary sector. The challenge is not simply to improve numeracy and financial literacy, but to ensure that financial systems are designed around the realities of later life. As financial decisions become increasingly complex, financial wellbeing will depend as much on effective advice, support and good system design as on individual skills.
Adele Atkinson is a Professor of Practice in Financial Literacy and Wellbeing in CHASM. She has 25 years of experience in undertaking rigorous academic and policy research designed to inform evidence-based approaches to improving financial inclusion and wellbeing. Before joining CHASM, she was Head of Financial Education at the OECD, responsible for the programme of work of the International Network on Financial Education, a network of financial policymakers in over 120 countries.
