Investors are wasting billions of pounds a year because they do not know enough about financial products.

The National Association of Citizens Advice Bureaux (NACAB) said financial services groups were profiting from a widespread lack of confidence, experience and understanding of money matters.

The group is calling for improvements in the regulation of the financial services industry and a national strategy to improve people's financial literacy.

NACAB estimates each year consumers waste £4 billion thro-ugh paying unnecessary interest on consumer credit, while £4.5 billion is lost through inappropriate debt consolidation borrowing.

The organisation said the rapid pace of change in the industry made it almost impossible for consumers to keep up, leaving them ill-equipped to spot when special offers were masking poor value deals.

People often found it difficult to identify the service or product that best met their financial needs and they were unsure how to get independent financial advice.

According to the research, based on evidence from 700 Citizens Advice Bureaux in England and Wales, common traps included people agreeing to reduced minimum payments on credit cards and taking payment holidays on loans, which both led to higher payments through accumulated interest.

It highlighted extended warranties, where consumers paid substantial sums for no more than their existing legal rights, and unsuitable payment protection insurance that added up to 25 per cent to the cost of a loan.

According to the group, one man took out a £500 high-interest loan which included a £65 acceptance fee, £99 for payment protection and a further £120 for family care insurance despite the fact he had no family, pushing the rate of interest on the loan up to the equivalent of 90.6 per cent a year.

A woman was persuaded to take out a credit agreement to buy a £9,000 conservatory despite the fact she could pay for it in cash. She paid £160 a month for 18 months and still owed £8,294.

NACAB chief executive David Harker said: "Dramatic changes in the financial services market in the past 25 years mean people now have a bewildering number of choices to make and responsibilities to exercise.

"Financial literacy is no longer just a desirable trait to be encouraged - it is an essential requirement for everyone if they are to benefit from these changes."

The report was welcomed by City watchdog the Financial Services Authority (FSA), which said it was working to improve financial literacy.

FSA head of consumer affairs Deborah Arnott said: "The NACAB report confirms how easy it can be for people to get into dire financial straits through a lack of understanding."

The FSA said it was concerned people were failing to get their maximum retirement income because they do not know how to get the best pension deals.

Despite a government drive to make people save for their future and moves by FSA to ensure people's financial options were made clear to them when they retired, many consumers were still confused about the different products available.

Research for life and pensions company MGM Assurance found more than a third of people over 45 had never heard of an annuity - a product bought on retirement by someone with a personal pension plan to provide them with an income.

Less than a third were aware they did not have to buy an annuity from their pension provider but could shop around to get the most competitive rate or the deal best suited their needs.

One in ten people thought they had to get an annuity from their pension provider, while 52 per cent said they did not have any idea where they could buy one.

Tim Gosden, pensions development manager at MGM Assurance, said: "The research findings make worrying reading. So many people are walking blind into retirement.

Opting for the most suitable annuity is vitally important to securing the very best financial health in retirement.

The fact that less than a third of respondents were aware of the open market option showed how important it was the FSA stood firm on its commitment to ensure pension providers made retired people aware of their right to shop around.