Nearly half of people fail a financial literacy test asking three key questions about interest rates, inflation and risk, a new study reveals.

A test of 3,000 adults - who were weighted to be nationally representative - found 20 per cent got no answers right, and a further 24 per cent only managed one correct answer.

Some 30 per cent passed by getting two questions right and 26 per cent aced the test, according to the research carried out by investment firm Abrdn.

Young people and women had the highest failure rates, and the 44 per cent shown to have poor financial literacy equates to 23.3million adults in the UK, the firm claims.

Abrdn analysed the finances of the thousands of people who took the test, and found those with good financial literacy, who got at least two questions right, have £20,000 more on average in their pension and are more likely to have a pension in the first place.

And those with high scores were almost twice as likely to hold investments as those with poor results, at 39 per cent versus 21 per cent.

Those who got no questions right were around twice as likely to have a low risk tolerance than those with the top score, at 62 per cent versus 34 per cent.

However, people who are better off - which skews to men and older people - are more likely to have opportunities in their lives to learn financial literacy.

Meanwhile, those with wealth will have achieved enough financial security to have investments and take higher risks with them.

The usual rule of thumb on whether you can afford to start investing outside a pension is you need to be free of debt (except for a mortgage) and hold an emergency savings fund worth three to six months of salary.

Abrdn acknowledged this in the study, saying there are likely to be several related factors affecting its findings, including low pay and socio-economic background contributing for example to whether people with low or high financial literacy have a pension and its size.

Who tends to score highly on financial literacy?

Men tended to have better financial literacy than women, with two or all correct answers to the questions above, at 69 per cent versus 44 per cent, Abrdn found.

Those with poor financial literacy, which means they got one or no correct answers, were 31 per cent men and 56 per cent women.

Of those who got nothing right, 13 per cent were men and 26 per cent were women.

In terms of age, the breakdown among those with good financial literacy was: 18-34, 44 per cent; 35-54, 54 per cent; 55+, 67 per cent.

Among those with poor financial literacy, it was: 18-34 56 per cent; 35-54, 46 per cent; 55+, 33 per cent.

For those with no correct answers, it was: 18-34, 26 per cent; 35-54, 22 per cent; 55+, 14 per cent.

Meanwhile, Abrdn also surveyed its cohort of 3,000 adults, weighted to be nationally representative, on their savings and investments and views on the economy and stock market.

It measured them on criteria like their understanding of products, likelihood to increase holdings, ability to manage savings and investments, risk tolerance and confidence in their own financial situation.

The overall results were propensity to save 53/100; propensity to invest 37/100; economic outlook 46/100; and propensity to save and invest (combination of all three) 45/100.

Abrdn says men had much higher scores than women, and on average propensity to save and invest was 51/100 versus 41/100.

Age made little difference, but younger people have a higher propensity to invest. Londoners scored highest at 51/100, and Scots scored 45/100.

People in Wales scored 43/100, Northern Ireland 44/100, Yorkshire and Humberside 43/100, and the south west 44/100.

How to improve financial literacy

To combat poor financial literacy, Abrdn has called on the Government to extend mandatory money education to primary schools and sixth forms in England, and to consider introducing a new GCSE and sixth form qualification that focuses on financial skills.

It also suggests integrating personal finance into relatable subjects across maths, economics, citizenship and food technology, and points out that Scotland already does this in its school curriculum.

The initiative is part of its campaign called ‘The Savings Ladder: A Manifesto to Get Britain Investing', which previously looked at people's preference for property over pensions as a long-term investment.

Its recommendations include simplifying Isas, scrapping stamp duty on UK shares and investment trusts, and doubling minimum pension contributions, as well as improving financial education.