Better financial education in schools could be the key to increasing social mobility, according to a new study.

People with low financial literacy are worse off than those with high financial literacy even when their earnings are similar, the new research from investment manager Abrdn found.

Lower earners with poor financial literacy experience a ‘pension penalty’ of £10,000 when compared to lower earners with higher financial literacy.

Just two thirds (66%) of those on low incomes with poor financial literacy have savings, compared with four-fifths (79%) of people in the same earnings bracket who have high financial literacy. Even when they do have savings, they hold on average £5,500 less than those with high financial literacy. 

Three quarters of those on middle incomes with poor financial literacy have savings, compared with 88% in the same earnings bracket with high financial literacy. The average gap between these groups when they do hold savings is £13,500. 

Similar trends appeared among higher earners.

Those with low financial literacy suffered a pension penalty of £87,500 less in their retirement pot when compared to higher earners with high financial literacy, who were also more likely to have a pension to start with. Some 41% of high earners with low financial literacy have a pension, compared to 66% of high earners with high financial literacy.

Eight in ten people with a high income but low financial literacy have savings, compared with 94% for those with high financial literacy.

Sarah Moody, chief corporate affairs and sustainability officer, at Abrdn, said: “It is extremely difficult to unpick the impact poor financial literacy has on people’s economic outcomes from other, related factors – such as their socioeconomic background. However, our research found that those with poor financial literacy are worse off, even when earnings are taken into account.

“Financial education in schools, done well, could be a key lever to help build the nation’s long-term financial resilience and improve social mobility. It’s often said that ‘money makes money’, but financial education is key to keeping, and growing it.”

She called on the government to undertake a “much-needed shake-up” of financial education in schools to extend mandatory financial education in both primary schools and sixth forms, and to start officially measuring financial literacy levels in the UK.

• Opinium surveyed 3,000 UK adults on behalf of Abdrn in May.