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From Financial Capability to CFEB – The Road Ahead
Cambridge Conference 14th & 15th July 2010
From Financial Capability to CFEB – The Road Ahead
Tony HobmanChief Executive, CFEB
Making a difference – the story so far
Steve StillwellManager, Young People Strategy and Development (CFEB)
The vision
Better informed and more confident consumers who are able to take greater responsibility for their financial affairs and choose products and services that meet their needs.
The story so far
• 2000: Financial Services and Markets Act identifies promoting publicawareness of financial system as one of FSA’s statutory duties.
• September 2003: FSA CEO John Tiner sets up Consumer Education Information and Generic Advice (CEIGA) project.
• November 2003: First meeting of Financial Capability Steering Group and Building Financial Capability in UK published and early working groups established.
• September 2005: Downing St. Seminar.
• March 2006: Baseline Survey and Delivering Change published.
• March 2008: Thoresen report on money guidance in UK published.
• July 2008: HMT/FSA Joint Action Plan – Helping You Make the Most of Your Money published and first Cambridge Conference.
• April 2010: CFEB established.
The underlying principles
• FSA’s – and now CFEB’s – role is to lead and co-ordinate.
• Work in partnership with others.
• Three tools we can use: information, education; guidance and advice.
• Recognise the importance of hooks offered by life stages and events.
• Some activity direct to consumer, some is through ‘trusted intermediaries’.
Reaching the UK population
TARGETED
INTERVENTIONS
UNIVERSAL
OFFER
MARKETING
Video
Summary
• It has been an interesting story so far, involving many people.
• There is a lot going on – but only by working in partnership with other organisations.
• We have learnt a lot – this will help us as we move to the next level of the Strategy.
Making a difference – what we have learned from evaluation
Elaine McCarthyManager, Consumer Research and Evaluation (CFEB)
Baseline Survey
In 2005 we conducted a Baseline Survey and published the results in 2006.
Financial Literacy Study
• In 2010 we will take part is the OECD’s Financial Literacy Study, which seeks to measure financial literacy across the world.
• Countries likely to take part include:
Armenia Germany Lebanon South Africa
Austria Hungary Malaysia Thailand
Colombia Iceland Norway Trinidad and Tobago
CzechRepublic
Italy Peru Turkey
France Jamaica Poland UK
What do we measure?
KnowledgeConfirm things people thought they knewGive people information completely new to them
Behavioural ChangeIntention to actActions taken
WellbeingEconomicPsychological
Financial CapabilityMaking Ends MeetKeeping Track of MoneyPlanning AheadChoosing Financial ProductsStaying Informed
Longer term
More immediate
Evaluation of the printed guide (September 2009 to February 2010)
Evaluation of the seminar (June 2007 to July 2008)
The printed guide reaches people through a variety of distribution channels –including employers, money guidance, the consumer helpline and displays in community buildings.
The seminar is delivered at large employer premises.
Making the Most of Your Money
Key messages people took from the guide
Seek advice (21%)
Budgeting (14%)
Savings (9%)
Pensions (9%)
To look at your finances and keep track of where your money is going. And if you can’t manage, get proper help or advice.
Always try to control your own finances and keep track of them, look carefully at the information provided before you make any decisions.
Regularly review what you are doing with your money, and where it is and are you getting a good rate of interest.
Review my pension – it’s given me confidence in the way I manage my money.
Key actions: Saving and investing
Respondents mentioned:• 7% Opened a savings account
• 6% Planning for future
• 6% Trying to save more
• 5% Changed existing savings to get better rate
• 9% Reviewing / looking for better deals
4 out of 10 had taken a hard or soft action after 3 months.
I’ve increased the payments to my ISA and I have started putting extra money away in my online savings account.
We have opened a savings account.
I am putting money regularly into a savings account.
Key actions: Saving and investing
Respondents mentioned:
7% Opened a savings account
Around 3 million guides have been distributed, 7% represents 210,000 employees.
4 out of 10 had taken a hard or soft action after 3 months.
Key actions: Credit cards, loans and overdrafts
Respondents mentioned:
• 10% Changed credit card to lower rate / 0% rate
• 6% Paid off credit card bill
• 4% Looked for better interest rates
• 4% Paid off loan / overdraft
• 4% Stopped using cards / reduced usage
• 3% Increased monthly payments
One of them we put on interest free payment and one of them we paid off
I’ve got rid of my overdraft and got a better deal on my credit card rates
3 out of 10 have taken a hard or soft action.
9%
8%
7%
5%
30%
45%
25%
35%
18%
15%
3%
8%
Pension/ retirement
Savings and investment
Getting financial advice
Credit cards/ loans/ overdrafts
Mortgage
Life/illness/ medical insurance
Taken action& seminarplayed big role
Taken action & seminarplayed a big/some role
Impact changing behaviour:(Hard) actions taken
18%
12%
11%
4%
3%
3%
4%
6%
1%
2%
Taken out pensionthrough employer
Increased pensioncontributions
Sought pensionforcast
Taken out a personalpension
Work past retirementdate Taken action and seminar played big role
Taken action and seminar played a big/some role
Impact changing behaviour:(Hard) actions taken
6%
4%
3%
18%
12%
11%
4%
3%
1%
2%
Taken out pensionthrough employer
Increased pensioncontributions
Sought pensionforcast
Taken out a personalpension
Work past retirementdate Taken action and seminar played big role
Taken action and seminar played a big/some role
Around 152,000 employees have attended a seminar since it’s inception, 6% represents 9100 employees.
Impact changing behaviour:(Hard) actions taken
Evaluation (December 2007 to May 2009)
The Parent’s Guide to Money is distributed to new parents via midwives.
The Parent’s Guide to Money
46
48
89
37
Increasedconfidence
Increasedknowledge
Looked at theguide
Strugglingfinancially
%
The guide is definitely engaging:
• 63% read the ‘Benefits’ section,• 54% read the ‘Budgeting’ section,• 50% read the ‘Countdown’ section,• 44% read the ‘Savings’ section.
Engagement, knowledge and confidence
14
13
4
9
16
Discussed finances with partner
Reviewed monthly income andspending
Paid off/ reduced outstandingdebt
Opened a Child Trust FundAccount
Checked eligibility for Tax Credits
%
Actions resulting from reading the guide
The actions taken or planned as a result of readingthe guide are varied and include both soft and hard actions.
Research with midwives
• Identified a need for more information about the guide for both midwives and support workers. Some midwives:
– do not know it exists;– are not sure of their role in its
distribution;– are unsure which parents to give it to.
• So we introduced a promotional leaflet.
Evaluation (October 2009 to January 2010)
Money Doctors equips student money advisors, in universities and student unions, with the knowledge, skills and resources they need to take a proactive and educational approach to student money guidance.
Money Doctors
The Money Doctors service has had a positiveimpact on just under a third of students accessing it.
11
9 23
19Money Doctors has helped me toafford to stay at University
Money Doctors has helped me stopworrying about finances and get on
with my studiesAgree strongly Agree slightlyNeither agree nor disagree Disagree slightlyDisagree strongly Don't know / refused
%
34
36
20
17 9
7
6
10
Impact on wellbeing:Psychological and financial
We estimate that around 58,000 students haveaccessed Money Doctors, hence we estimate thatwe have helped 17,400 students.
Impact on wellbeing:Psychological and financial
11
9 23
19Money Doctors has helped me toafford to stay at University
Money Doctors has helped me stopworrying about finances and get on
with my studiesAgree strongly Agree slightlyNeither agree nor disagree Disagree slightlyDisagree strongly Don't know / refused
%
34
36
20
17 9
7
6
10
Making a difference
Imparting knowledgeBehavioural changeIncreased wellbeingContributing to Financial Capability
Putting people in control of their moneyIncreased saving activity.Increased activity in the financial market place
We have evidence of:
Questions?
From the Money Guidance Pathfinder to the national financial advice service
Jim DredgeHead of Operations and Money Guidance (CFEB)
Session outline
• Introduction to money guidance
• Pathfinder achievements
• Learning from the pathfinder
• Towards a national money guidance service
• Short film – “A day in the life of a Money Guide”
• Panel discussion
What is the Money Guidance Pathfinder?
A service offering personalised help to people, giving them the confidence and capability to make the most of their money – now, and in the future.
Subjects covered
Jargonbusting
Budgeting Savingand
borrowing
Tax andwelfarebenefits
RetirementplanningProtection
Principles of the service
Impartial
Supportive
Crisis prevention
Universal
Sales-free
Vulnerable
• The Thoresen Review’s terms of reference asked it to recommend: “the most effective way of serving a generic financial advice (GFA) service to different groups, ensuring effective targeting of those most vulnerable to the consequences of poor financial decision- making”.
• UK population mapped on a scale according to vulnerability.
» 9+ points ‘most vulnerable’» 2-8 points ‘moderately vulnerable’» 1 point or less ‘least vulnerable’
• Money guidance target market is 6-11 on the scale.
Target population
19 million people
Pathfinder
• Jointly funded by HM Treasury and FSA.
• Operated by FSA.
Consumers
Operating model
Web phone Face to face
Moneymadeclearwebsite
Contractorcall centre
Face-to-faceContractor
delivery
Debt advice agency, TPAS, industry etc.
Intermediaries
Referrals
www.moneymadeclear.org.uk
Face to face
• A4e• Age Concern North East• Age Concern North West • Association of British Credit Unions • National Association of Citizens Advice
Bureaux• Consumer Credit Counselling Service• Knowsley Advice Forum (led by Citizens
Advice)• Liverpool Money Talk Consortium (RAISE)• Manchester Credit Union• Oddfellows Friendly Society and Life
Academy• Police Mutual• Salford Unemployed and Community
Resource Centre and Wirral Health and Safety Welfare Advice Centre
• Young People’s Support Foundation
Telephone
Teleperformance
Intermediaries
• Joint help• Support
Referrals out
TPAS
Industry
National Debtline
CCCS
Many destinations, including:
Training and Quality Assurance
Training:• Uniform process.• Content developed by CFEB.• Ongoing learning and
development requirements.
Quality Assurance:• Undertaken by CFEB.• Combination of observation
and analysis.• Contractors also required to
implement effective QA processes.
Evaluation
Independent evaluation by
Professor Elaine Kempson.
• Published today.• Copies available in the foyer.
Pathfinder evaluation findings
Money Guidance has met its objectives and is making a distinct contribution to the general marketplace for information and guidance on money matters.
Professor Elaine Kempson
?? ?
Pathfinder evaluation findings
• The service is helping people to manage their money better.
• It provides information and guidance to a group of people who fall into a gap between information and regulated financial advice.
Service use in NE and NW
571,100 sessions24,600 face to face3,800 phone542,700 web
More than
90%of users were very or quite satisfied with the money guidance service.
80%would use the service again.
Over 80%of all users would definitely recommend the money guidance service to others.
50% of face-to-face users had recommended it to at least one person within two months.
Proportion of users acting within two months of using the service
0% 25% 50% 75% 100%
F2F
Tel
Web
Have acted Have done nothing but plan to actDon't plan to do anything Don't know
Distribution of vulnerable users
25
30
2725
49
23
50 57
1723
4726
Population of thepathfinder area
F 2 F Tel Web
Most vulnerable Moderately vulnerable Least vulnerable
Most popular topics
FaceFace--toto--FaceFace
1. Budgeting
2. Social Security
& benefits
3. Credit &
borrowing
TelephoneTelephone
1. Credit &
borrowing
2. Mortgages
3. Savings &
investments
WebWeb
1. Mortgages
2. Credit &
borrowing
3. Budgeting
National financial advice service
• Spring 2011, comprehensive national advice service in place.̶ Incorporating Financial Health
Check.
• Moneymadeclear website and helpline already available nationwide.
• Face to face national roll-out spring 2011.
• Procurement contains four lots covering England, Scotland, Northern Ireland and Wales.
National financial advice service
national advice service in place.Incorporating Financial Health
Procurement contains four lots
National Rollout for face-to-face delivery
• Face-to-face sessions currently being delivered in priority areas across Greater London, Scotland, Wales and Northern Ireland by 10 CFEB Money Guides.
• Pathfinder face to face contracts extended.
• Therefore we are delivering in 37 out of 50 priority areas in the UK.
National Rollout for face-to-face delivery
currently being delivered in priority areas across Greater London, Scotland, Wales and Northern Ireland by 10 CFEB
Therefore we are delivering in 37 out of 50 priority areas
I saw loads of useful budgeting tools on the website that I think I may go back and have a look at.
User feedback
The guy was very clear and told me they were impartial –they couldn't tell me which ISA to use.
All I know is that I rang this number and they helped me.
I had no idea what to expect but she made it clear right from the start that she wasn’t about sales or recommendations.
You can go with a number of problems and get advice for all of them.
Refreshing. Not selling. Just options.
Video
Q&A
Panellists:
• Jim Dredge – Head of Operations and Money Guidance, CFEB
• Jack Neale – Money Guide, CFEB
• Maura Farrelly – Community Resources Officer, Advice and Anti Poverty, Tower Hamlets Borough Council
• Dan Hopewell – Director of Services, Bromley by Bow Centre
• Randolph Salvary – Credit Control Manager, Tower Hamlets Credit Union
He listened to me, everything I had to say about work & my situation.
You can read something a hundred times, but it’s only when somebody explains something to you that it clicks.
Thanks for all your help so far!
Life events
Vyvian BronkManager, Work and Later Life (CFEB)
Vivienne ManAdults Strategy and Development (CFEB)
Life events increase financial problems
0% 10% 20% 30% 40% 50% 60% 70%
Unemployment
Retirement
Having a baby
Full to part-timework
Divorce/separation
Increase in number of financial problems
Our new offerings
ESTABLISH NEED
PILOT, EVALUATE &
REFINE
BUILD ENGAGEMENT
STRATEGY
IMPLEMENT
EVALUATE IMPACT
EMBED TO SUSTAIN
ESTABLISH DISTRIBUTION
CHANNELS
Development and delivery model
Consumer research results
42,000 copies distributed in four months.
The Redundancy Handbook
It’s comprehensive and covers areas I would never have thought of.
A very clear, concise guide to redundancy, offering lots of guidelines, advice…Offered lots of options and most importantly, hope.
CFEB Regional Managers & workplace seminars
17,300 copies
Employers – public & private
CFEB Money Guidance
2,000 copies
Face to face and telephone
TUC
14,000 copies
Online direct ordering
Jobcentre Plus
8,650 copies
Via Rapid Response Service
ACAS50 copies
Single region pilot
The Redundancy Handbook: Distribution channels
•17,800 guides distributed in four months
Your Guide to Retirement
No one tells you about all this – everyone should get it!
I took the guide into work and shared it with colleagues.
I knew my retirement was looming but I never wanted to think about it, this guide has made me face up to the fact that I have important decisions to make.
TPASPre-retirement
seminars
Pensions helplineEmployee Benefit
Consultants
offering guide to top clients
Pension Mgt. Institute
Advertising guide to members
Money GuidanceFace to face and phone
Employers
Via CFEB Regional Managers
Largest channel
Life AcademyPre-retirement
seminars
Age UKNational helpline
PensionProviders
With OMO packs and pre-retirement
seminars
Marketing
Saga magazine
Flyers in GP surgeries
Professional Organisations
SOLLA
TUCDWPSent out in response to
phone queries on pensions and retirement issues
Potentially large channel
Your Guide to Retirement: Distribution channels
Questions for the audience
Are men or women more likely to be concerned that money worries will cause them to break up with their partner?
Source: Relate You Gov Survey (2009)
What percentage of couples felt they were arguing more because of money worries?
20% (red)
40% (amber)
70% (green)
men (red)
women (green)
• Website launched April 2010.
• Over 10,500 visits since April (without promotion).
• Developing by November 2010 an interactive tool to estimate cost of splitting one household into two.
Divorce and Separation website
The information provided is empowering; it gives you the confidence to move further.
Divorce & Separation website replaces narrower interim content on Moneymadeclear – even this had a powerful impact on users:
Evaluation findings of interim content on Moneymadeclear
59% were taught things they did not know about managing money.
74% would recommend the web pages.
61% said they were prompted to think about actions and issues for the first time.
77% said they would go back to the web pages.
44% of those in the process of divorce or separation revisited the web pages.
Key messages
• Life events are opportunities to engage people when they are most receptive to dealing with their finances.
• Our life event handbooks and website help people to ‘get started’ in thinking about their finances at these times – something not available from other sources.
• We need financial capability offerings which are tailored to people’s particular needs as well as universal offerings such as money guidance.
• Financial Capability is an important component of the landscape of support, and this requires involvement across all sectors – professional services, third sector and government.
David ScottHuman Resources Manager, Corus
• Resulted in:• Face to face – Group seminars 31 / 500 attendees. One to ones x 200 (Redcar
only due to timing of launch).• Literature – 3900 Making the Most of Your Money, 4500 Money Made Clear
(available thru onsite resource centres). 502 Redundancy guides. 352 retirement guides.
• Sites covered – Wolverhampton, Wednesbury, Newport, Sheffield, Scunthorpe, Redcar, Skinningrove, Rotherham.
• Queries – Debts, retirement lump sums, pension queries, retirement options.• Feedback – 95% said that info had assisted their understanding. 94% intended to
take more action as a result.
• Next Steps: Ensure consistent access to resources across the UK. Working with Trade Unions in consistent approach to retirement. Viewed as impacting on different elements the employee lifecycle. Employment brand impact.
Corus and the FSA: 2009/2010
• 2008/2009 was a “difficult” year – job losses across the UK
• First contact made in West Midlands via JCP partnership: Our request from Partnerships was for education over advice.
Anne BellPensions Information and Presentation, DWP
Audience segmentation – planning and saving for retirement information
Daunted26%
25%
22%
17%
Unprepared
Reallysorted
Maybesorted
Lessconfident
Moreconfident
No plans
10%Competingpriorities
Characteristics: under 30
Emotional: optimistic, tend to think “yeah, whatever”
Triggers: like things to be quick and easy
Information preferences: Online; less likely to seek out
information proactively
Characteristics: 40-64 low earners
Emotional: Afraid
Triggers: Need reassurance; respond well to simple
explanations; feel empowered by taking simple steps
Information preferences: Rely on social network; more inclined
to use telephony
Characteristics: median to high earners, high mortgages
Emotional: Feel stretched
Triggers: more experienced consumers of financial services,
want to know the benefits
Information preferences: multiple, including employer and
scheme sources
Characteristics: 35+
Emotional: confident
Triggers: minimal
Information preferences: Mostlikely to use IFAs
Characteristics: 45+
Emotional: confident
Triggers: Need for a fall- back position
Information preferences: Mixed; do not trust “the pensions
system”
Source: Continental Research
Moneymadeclear – part of a Revolution
James PirrieSolicitor, Resolution
Just a website or leading a revolution ?
JamesJames PirriePirrie, solicitor, solicitor
•• The stress of loss of The stress of loss of attachment relationshipattachment relationship
•• Brain chemicals aim to put Brain chemicals aim to put routine functions on hold to routine functions on hold to focus energy on meeting focus energy on meeting crisiscrisis
…… but meanwhile in the real worldbut meanwhile in the real world……
… but meanwhile in the real world…
Less legal aid Less legal aid (in part feeding:)(in part feeding:)
Website etc help Website etc help ((wikivorcewikivorce etc in part feeding:)etc in part feeding:)
The more aware clientThe more aware clientWhilst at court: Whilst at court: Higher costs Higher costs –– greater efforts greater efforts
–– greater complexity greater complexity –– more delays more delays –– higher higher costs (a cycle)costs (a cycle)
Perceived success of Perceived success of diydiyProfessional creativity.Professional creativity.The crash.The crash.
PovertyPoverty Legacy of Legacy of
resentmentresentment Court Court
traumatrauma
Leaving Rome
From a blank page … what would we have?
AccessibleAccessibleChildChild--FocusedFocusedFair Fair NeedsNeeds--meetingmeetingEducativeEducative
Barriers for professionals to address:
CostRemoteness
Current professionals’view of the
good approach
Moneymadeclearalso an access
route to services?
5) Options
Q&A
Panellists:
• Laurie Edmans - Chair
• David Scott – Human Resources Manager, Corus
• Anne Bell – Pensions Information and Presentation, DWP
• James Pirrie – Solicitor, Resolution
Financial capability and wellbeing – building resilience in tougher times
Andy NewtonAdults Strategy and Development (CFEB)
Elaine McCarthyManager, Consumer Research and Evaluation (CFEB)
• Building our research programme
• What we are learning
• From theory to practice
• What’s coming next…
Session outline
Building expertise
Building knowledge and expertise through a programme of cutting edge research:
Encourage enquiry and debate
Stimulate interest and develop thinking
Influence wider policy and practice
Transforming financial behaviour
Strategic Research &
Analysis
Changing behaviour
Impact of what we do e.g. wellbeing
Excellence in development &
delivery
Building enduring financial capability
HOW WHY
May 2009 – Further investigation: Occasional Paper 34: improvement in financial capability leads to an improvement in psychological wellbeing.
November 2008 – The starting point: Occasional Paper 30: strong correlation between financial capability and psychological wellbeing.
September 2009 – Determinants of financial capability: how life events affect financial capability levels.
Upcoming research for 2010:
Savings behaviour: how financial capability levels affect whether and how much individuals save.
The long term impacts of financial capability: long-term benefits (costs) associated with financial (in)capability.
Research programme
1. Relationship between financial capability and wellbeing.
2. Impact of life events on financial capability.
Both projects used data from the first 16 waves of theBritish Household Panel Survey, covering the years 1991-2006
Recent research projects
0.5
11.
5D
ensi
ty
-4 -2 0 2Income-adjusted financial capability
Source: BHPS 1991-2006
Financial capability distribution
While most people were managing their finances relatively well, those that have problems can suffer extreme difficulty.
-2
Highcapability
Lowcapability
Financial capability levels
Older (>55)Married or widowed
with no dependent childrenSmaller households
Good healthHome owners
Full time permanent job
HIGHER
Younger (<35)Divorced or separated
UnemployedLarger households
Lone parentsFair or poor health
Rented accommodationImmigrants
LOWER
Helps us to target our work
Financial capability
Life events put new pressures on ability to cope
Life event: Change in number of financial problems:
Unemployment 63%
Retirement 31%
Having a baby 19%
Moving from FT to PT work 18%
Divorce / separation 17%
Entering work 27%
Having an employed spouse 15%
Impact of life events on financial capability
Financial capability
Life events put new pressures on ability to cope
Wellbeing
Financial capability
Wellbeing
How does financial capability relate to wellbeing?
Psychologicalwellbeing
Environmentalwellbeing
Economic / financialwellbeing
Socialwellbeing
Financial capability
Source: NEF (2008), adapted FSA (2009)
-.20
.2.4
.6Fi
nanc
ial i
ncap
abili
ty
0 6 12 18 24 30 36Mental stress
Source: BHPS 1991-2006
Our research shows a clear relationship between financial capability and wellbeing
High mental stressLow mental stress
Less financiallycapable
More financiallycapable
Potential gain from improving financial capability
Unplannedtransitions Decreased
financial and psychological
wellbeing across the population.
Uncertainty in planning ahead.Income shocks.
Budgeting difficulties.Insufficient money management skills.
Financial capability in a recession
Unforeseenevents
Anxietyand stress
Impact on personal wellbeing
• Improving financial capability improves wellbeing and life satisfaction:
• The relative size of the impact is large:
• It protects your wellbeing when a shock occurs:
It reduces the likelihood of suffering a health problem related to anxiety or depression by 15%.
The impact on wellbeing is at least 7 times (and as much as 13 times) as great as an additional £500 a month household income.
A fall in financial capability doubles the negative impact on wellbeing of being divorced.
There were key differences pre- and post-intervention.
Prior to viewing the website, respondents used negative words.
After browsing through the website respondents used a range of more neutral/positive words.
Divorce & Separation content: Moneymadeclear website
Feelings/financial confidence – beforeviewing website
Divorce & Separation content: Moneymadeclear website
Feelings/financial confidence – afterviewing website
Divorce & Separation content: Moneymadeclear website
86
81
68
63
63
61
58
94
90
77
72
70
70
67
Coping
Clear headed
Comfortable
Confident
Optimistic
Decisive
Relaxed
Pre interventionPost intervention
Positive words to describe self and finances:
Make the Most of Your Money guide
All positive measures increased
30
28
24
22
17
16
23
21
19
21
16
15
Anxious
Worried
Stressed
Tense
Fearful
TroubledPre interventionPost intervention
Negative words to describe self and finances:
All negative measures dropped
Make the Most of Your Money guide
45
47
41
34
29
29
34
41
35
39
28
28
Anxious
Worried
Stressed
Tense
Fearful
Troubled
Pre interventionPost intervention
Negative words to describe self and finances –by those vulnerable to the consequences of poor financial decision making:
Make the Most of Your Money guide
Financial capability
Wellbeing
Saving as a strategy for
buildingresilience
Financial capability and savings
Life events put new pressures on ability to cope
Financial capability
Wellbeing
Planning ahead
Coping with lumpy
expenditure
Saving for a ‘rainy day’
Saving for the long term
A key component of financial capability is the ability to make adequate provision for the future.
Planning ahead
Nearly half of the UK appear to be less capable in planning ahead
FSA Baseline Survey
The baseline survey showed that…
• Over a 3 year period, nearly 30% of people had experienced a large unexpected drop in income.
• Over 20% had faced a large expense.
Yet 70% havemade no personal provision to face a drop in income
Yet 70% havemade no personal provision to face a drop in income
Planning ahead
Coping with lumpy
expenditure
Saving for a ‘rainy day’
Saving for the long term
Saving and non-saving show considerable ‘stickiness’ – ISER (2010)
Persistence in saving: Persistence in non-saving:
Around 65% of people not saving were still not saving 16 years on.
Just over half of people saving in one year were still saving 16 years on.
“Do you save any amount of your income for example by putting something away now and then in a bank, building society, or Post Office account other than to meet regular bills?”
What does this imply for the population as a whole?
20% show a tendency to be persistent savers
40% show a tendency to be persistent non-savers
40% of people move in and out of saving
Financial capability and savings behaviour
20% of people are persistent savers
40% of people are persistent non-savers
40% of people move in and out of saving
The more financially capable are:• More likely to start saving• Less likely to stop saving
The less financially capable are:• Less likely to start saving• More likely to stop saving
CFEB already engages with many of those who are likely to be non-savers.
Questions?
Changing minds, changing contexts – the role of Behavioural Economics
Amanda BoweHead of Strategy, Evaluation and Consumer Affairs (CFEB)
Transforming financial behaviour
ransforming
Changing financial behaviour
Professor Paul DolanLondon School of Economics
Standard economic approach …
We seek to maximise wellbeing• Our wellbeing is derived from the satisfaction of our (fixed
and given) preferences.• Our preferences are revealed through our choices.
We are rational• We weigh up the costs and
benefits of different choices for lifetime wellbeing (including whether to weight up the costs and benefits) and act accordingly.
Behavioural economics
Incorporates the lessons from psychology into the laws of economics.
Going further – dual processing
It turns out that the environmental effects on behaviour are a lot stronger than most people expect.
Danny Kahneman, Oct 2008
MINDSPACE
Messenger who communicates information
Incentives shaped by mental shortcuts
Norms influenced by what others do
Defaults go with the flow of pre-set options
Salience attention drawn to relevant novelty
Priming influenced by sub-conscious cues
Affect emotional associations shape actions
Commitment consistent promises and reciprocity
Ego seek to feel better about ourselves
MINDSPACE: A checklist for policymakers
Salience
< 50% prefer non-annuitisedproducts when choice framed as risk and return.
> 50% prefer annuity when choice is framed as consumption.
Priming
Primed with a credit card:
• More likely to spend more.• More likely to spend quicker.
Paying with credit card as opposed to cash:
• Higher willingness to pay.
Affect
A photo on an attractive woman increases borrowing as much as dropping the interest rate by 1% (for both men and women)
Recommendations
• Education and information can only get us so far.
• If MINDSPACE is understood and used cleverly, it can change behaviour.
• Need for more research and collaboration between UK academics and the private sector in designing, implementing and evaluating interventions.
Financial services case studies
Antony ElliottDirector, Fair Banking
Three industry case studies
Making ends meet accounts
• Defaults – standard set up.
• Incentives – discourages use of money for other purposes.
• Commitment – regular allocations to pay for regular bills.
Keeping track products
• Salience – provide regular relevant feedback.
• Priming – ‘never overspend’.
• Commitment – not to spend more than is pre-loaded.
Goal-based savings accounts
• Affect – account naming and photograph.
• Incentives – discourages use of money for other purposes.
• Default – standing order set up on opening.
• Salience – feedback on progress.
• Commitment – to a goal.
CFEB case studies
Sarah SmithAdults Strategy and Development (CFEB)
Three CFEB case studies
Making the Most of Your Money: Workplace seminar
• Messenger – expert.
• Norms – people like us.
• Incentives – loss aversion.
The Parent’s Guide to Money
• Messenger – trusted.
• Salience – ‘did you know…’.
• Ego – ‘keeping your family secure’.
Money Doctors
• Incentives – mental accounting.• Commitments – follow-up session.• Affect – ‘Money Makeover’ harnesses aspirations and goals.
Questions?
Closing remarks
Tony HobmanChief Executive, CFEB