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TRANSCRIPT
Numeracyliteraturereview
February2017
PreparedforMoneyAdviceService
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TECHNICALDOC1Numeracyliteraturereview[4].docx
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ContentsExecutivesummary 3
Listoftablesandfigures 4
Authors 4
Introduction 5
Background 5
Objectives 5
Methodology 5
Numeracyandfinancialcapability 6
DefiningNumeracy 6
Evidenceforacausaleffectbetweennumeracyandfinancialcapability 6
Attitudesandmotivationsforfinancialbehaviour 6
Demographicfactors 7
Financialconfidence 8
Financialliteracy 8
Demographicdifferences 9
Managingday-to-day 10
Numeracy 10
Financialliteracy 11
Choosingproducts 12
Numeracy 12
Financialliteracy 12
Decision-makingprocess 12
Planningahead 13
Numeracy 13
Financialliteracy 13
Demographicandattitudinaldifferences 14
Interventions 15
Theroleofnumeracyinfinancialeducation 15
Effectiveinterventions 15
Currentevidenceandknowledgegaps-recommendations 16
Knowledgegaps 16
Considerationsforadultbasicskillspolicy 16
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TECHNICALDOC1Numeracyliteraturereview[4].docx
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Conclusions 17
Numeracyandfinancialcapability 17
Financialconfidence 17
Managingday-to-day 17
Choosingproducts 17
Planningahead 18
Interventions 18
References 19
Stayintouch 21
Appendices 22
Appendix1:Detailsofstudiesreferredto 22
Appendix2:Questionsusedtomeasurenumeracyandfinancialliteracy 25
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TECHNICALDOC1Numeracyliteraturereview[4].docx
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ExecutivesummaryWhilstthereisastrongcorrelationbetweennumeracyand/orfinancialliteracyandlevelsoffinancialcapability,thereislessevidenceforacausalrelationshipbetweenthetwo.Demographicfactorssuchasgender,ethnicity,educationandincome,aswellasattitudinaldifferencesplayasignificantroleinthefinancialdecision-makingprocess,particularlyforlessnumerateindividuals.
Whenitcomestochoosingproducts,thereisastrongcorrelationbetweennumeracyand/orfinancialliteracyandtheabilitytomakesensibleinformedchoices,basedonvarioussourcesofinformation.Financialconfidence,bywhichismeantanindividual’ssenseoftheirownabilitytomanagemoney,isalsoasignificantfactorinfinancialdecision-making,andlowerlevelsoffinancialliteracycanimpactonfinancialconfidence.Thistypicallyoccursamongstyoungerpeopleandwomen.However,evidencesuggeststhatover-confidenceexistsamongstcertaindemographicgroups,typicallytheolderrelativelywell-off,andthiscanresultinindividualsbeinglesslikelytoseekprofessionaladviceandpotentiallymakingpoorerdecisionsasaresult.Dedicatedfinancialeducationprogrammescanhaveapositiveimpactinrelationtolevelsoffinancialconfidenceandthereforeindividuals’abilitytomanagemoney,yetthosewhofeeltheylacknumeracyskillsaretypicallylesslikelytowanttoimproveinthisarea.
Thereisalsoastronglinkbetweennumeracyand/orfinancialliteracyandday-to-dayfinancialmanagement,withthosewithmoreadvancednumeracyskillsbeingmorelikelytocheckbillsorbankstatementsonaregularbasis.However,theevidencetosupportthisrelationshipisusuallycaveatedbyotherfactors.Thosewhoarelesslikelytokeepontopofday-to-dayfinancialmanagementmaytakelessofaninterestgenerally,whilebackgroundfactorssuchasincomeandeducationcanplayarole,againunderminingthecaseforacausalrelationship.
Planningaheadisalsopositivelyinfluencedbylevelsofnumeracyand/orfinancialliteracy.Intermsofdemographics,long-termfinancialplanningismorelikelytobeundertakenbyolder,wealthierandmoreeducatedindividuals,withthesegroupstakingmoreofanactiveapproachtosavingsandinvestments.Atanattitudinallevel,thereisalsosomeevidencethatindicateslessnumerateindividualsaremoreliketoconsidershort-termoverlong-termfinancialplanning.
Thereisagoodamountofevidencetosuggestthatinterventionssuchasfinancialeducationprogrammescanstimulatepositivefinancialbehaviourchange.However,thelow-numeracygroupssuchprogrammesareaimedattendtobehardtoengage,thusunderminingthepositiveimpactsthatsuchprogrammescanhave.Questionsaroundwhethersuchprogrammesshouldfocusonnumeracyorfinancialliteracyremain.
Moreempiricalresearchisrequiredintotheattitudesoflow-numeracy/financialliteracygroupstowardsbothlonger-termplanningandday-to-daymanagement,andalsointothebarrierstogoodmoney-management.
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TECHNICALDOC1Numeracyliteraturereview[4].docx
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ListoftablesandfiguresFigure1:Numeracylevelsbyfrequencyofcheckingbillsorbankstatements,fromBISresearchpaper,no.81(seerefs)
AuthorsDrAlisonHulme,AssociateDirector,BreakingBlue–isaspecialistinqualitativeresearchtechniques,andhasconductedmanyliteraturereviewsandempiricalstudiesintothefinancialsectorandsurroundingsocio-economicissues.
JohnNewton,AssociateDirector,BreakingBlue–isaquantitativeandqualitativeexpertandhasundertakenarangeofprojectsrelatingtofinancialdecision-makingandconsumerbehaviour.
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TECHNICALDOC1Numeracyliteraturereview[4].docx
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Introduction
Background
Previousresearchhasfoundlowernumeracytobelinkedtolowereffectivenessinkeepingtrackoffinancesandlowerconfidencemanagingmoney,whilehighernumeracyhasbeenlinkedtosettingfinancialgoalsandusingbest-buyliteraturewhenchoosingproducts.TheMoneyAdviceService(MAS)continuestoexplorethepossibleconsiderationsforadultbasicskillspolicyforstakeholdersinthepublic,privateandcharitablesectorsandcontributetothefinancialcapabilityevidencebase.Thisliteraturereviewprovidesa‘deepdive’inordertoestablishthelinksbetweennumeracyandfinancialcapability,andinformthedevelopmentofsuccessfulfinancialcapabilityinterventionsforworkingageadults,includingthedesignofappropriatepolicy.
Objectives
Thekeyobjectivesofthisliteraturerevieware:• togainabetterunderstandingoftherelationship
betweennumeracyandfinancialcapability,andwhetherthereisacausalrelationshipbetweenthetwo
• toanalysewhethernumeracyismore,orless,importantthanattitudesandmotivationswhenitcomestofinancialcapability
• tounderstandifthereareparticulardemographicfactorsthataffectnumeracyandconsequentlyfinancialcapability;forexample,gender,ethnicity,educationlevel
• toanalysetheroleoffinancialconfidenceinfinancialcapability
• toexaminewhatgoodmeasuresofnumeracyandfinancialcapabilitymightbeandhowinterventionscanbesttaketheseintoconsideration
• toidentifygapsinthecurrentevidencebasewherenewresearchmayberequired
Methodology
Thisliteraturereviewwasconductedbasedonourestablishedandsuccessfulapproachtofinding,reviewing,andanalysingexistingsources.AninitiallistofsourceswasprovidedbyMAS,basedonarticlesrecommendedbyindividualstakeholdersduringinterviews.Weaddedtothislistviakeywordsearches,utilizingacademicdatabases,industryreports,andbothonlineandofflinechannels.Wethen‘snowballed’thislistbyreviewingthosesourcestheymentionedtoseeiftheywererelevant,andrepeatedthisprocesswithanynewarticlesweincluded.AllsourceswerethenreadandsummarizedagainstthehypothesesprovidedbyMAS,andinlightofanyadditionalthemesrelevanttothosehypotheses.Analysiswasconductedinordertoascertainandagreeuponemergingthemes,whichthenbecamethebasisforthechaptersofthisreport.
Itshouldbenotedthatallresearchapproacheshavesomemethodologicallimitationsandaliteraturereviewisnoexception.Thisstudyincorporatedonlyrecognised,published,secondaryresearch.Noun-publishedmaterialwasincluded.Wewere,therefore,boundbytheinformationthatwasavailabletous:notallofthesubjectsthatwereofinteresttothereviewhadnecessarilybeencoveredbyexisting,publishedresearch.Inaddition,thisliteraturereviewwaslimitedtopublishedsourcesintheEnglishlanguageonly,andsoexcludedanysourceswrittenexclusivelyinotherlanguagesandnottranslatedintoEnglish.
Anyresearchstudyconductedwithinasettimelimitisboundtobesomewhatselective.Althoughgreateffortwastakentoassessallpotentialsourcesofinformation,itisimpossibletoguaranteethateveryrelevantsourcewasreviewed.Overall,thequalityoftheevidenceevaluatedwashigh,butonlyreliablesourcesofdatawereincluded.Thismeantthosenotbackedbyanestablishedbody,orpublishedinanestablishedjournalwererejected;aswerethosepublishedinjournalsthatwerenotpeerreviewed;web-onlysourceswerepermittedwheretheyappearedviathewebsitesofrespectedorganisations.Thereferencesdonotincludematerialsidentifiedviasearchesbutrejectedfromthestudyonthesegrounds.
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Numeracyandfinancialcapability
DefiningNumeracy
Throughoutthisreportwerefertoboth‘numeracy’and‘financialliteracy’.Bynumeracywemeantheextenttowhichanindividualisnumerate,i.e.theirproficiencyatundertakingmathematicalcalculationsoutsideofafinancialcontext.Byfinancialliteracywemeanamoregeneralmeasureincludingtheabilitytoperformbasicfinancialcalculations(usuallyrelatedtoconceptssuchascompoundinterest,inflationandtimevalueofmoney)aswellastheirresponsestobroaderquestionsonfinancialproductsandplanning.Mostofthesourceswereviewedusedthetwotermsinwaysalignedtothesedefinitions;wheretheydidnot,wehaveexplainedtheirspecificdefinitions.Afewsourcesusedthetermsinterchangeably,andinthiscasewehaveinterpretedwhatismeantonacase-by-casebasis.
Werecogniseinusingthesetwotermsthatthedifferenceisanimportantone.Anindividualmayhavelownumeracybutstillhavegoodfinancialliteracy.Therefore,wearecarefultopointoutwhereitisactuallygreaterfinancialliteracythatmayberequired,asopposedtogreaternumeracy(althoughweacceptthathighernumeracycertainlyaidslevelsoffinancialliteracy,andthatatthemostbasiclevel,financialliteracyisnotpossiblewithoutnumeracy).
Evidenceforacausaleffectbetweennumeracyandfinancialcapability
Thereareseveralstudiesnotedthroughoutthisreportthathighlightastrongcorrelationbetweennumeracyand/orfinancialliteracyskillsandlevelsoffinancialcapability;thosewhohavestrongerskillsintheseareastypicallymanagetheirfinancesandmakeproductchoicesinamoreeffectivemanner.Forexample,astudyundertakenbythe
1BanksandOldfield(2007)Understandingpensions:Cognitivefunctions,numericalabilityandretirementsaving2HogarthandHilgert(2002):FinancialKnowledge,ExperienceandLearningPreferences:PreliminaryResultsfromaNewSurveyonFinancialLiteracy3ColeandFernando(2008).Assessingtheimportanceoffinancialliteracy4HogarthandHilgert(2003):HouseholdFinancialManagement:TheConnectionbetweenKnowledgeandBehavior5MoneyAdviceService(2015)Measuringfinancialcapability–identifyingthebuildingblocksUnderstandingwhatdrivesorinhibitsconsumers’financialwellbeingandresilience
InstituteforFiscalStudiesfoundstrongpositivecorrelationsbetweennumeracylevelsandproductchoicesaroundretirementplanning1,whileHogarthandHilgert(2002)2findastrongcorrelationbetweenthosewhoscorehigheronfinancialliteracytestsandthosewhofollowrecommendedfinancialpracticessuchaspayingallbillsontimeandhavinganemergencyfund.
However,thereislessevidencethatdemonstratesacausaleffectbetweennumeracyand/orfinancialliteracyandlevelsoffinancialcapability.Indeed,ColeandFernando(2008)3considervariousstudiesthatexplorethisrelationship(particularlyinrelationtofinancialliteracyprogrammes)andmakethecasethat‘financialliteracymaybeasecondary,oreventertiary,determinantofindividualfinancialbehaviour’.Whiletheyacknowledgethatimprovedfinancialliteracymaywellhaveapositiveimpact,theyarguethatfindingadegreeofcausalityisdifficulttoachieveinthecontextofotherfactorsthatcouldinfluencedecision-making.Inaddition,HogarthandHilgert(2003)4placedoubtonthecausalityoftherelationshipbetweenfinancialliteracyandbehaviour.Theyarguethatknowledgemayincreaseaswealthincreases,orotherfactorssuchasfamilyexperiencesandeconomicbackground,mayaffectbothknowledgeandbehaviour.
Attitudesandmotivationsforfinancialbehaviour
Therearevariousfactorsthatfeedintofinancialcapabilityanddecision-makingalongsidelevelsofnumeracyand/orfinancialliteracy.AsoutlinedbytheMoneyAdviceServiceinitsanalysisoftheUKFinancialCapabilitySurvey5,factorsincludingfinancialconfidenceandfinancialengagementarekeycomponentsoffinancialwellbeing(or‘enablersandinhibitors’specifically),more-sothanfinancialnumeracyskills.Thepaperconcludes‘thatitisanindividual’sconfidenceinapplyingtheirbasicnumeracyskillsthatisimportant’;i.e.assumingan
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individualhasabasiclevelofnumeracy,itistheirconfidenceinmanagingeverydaymoneymattersthathasthegreatestimpact.Confidenceisinvestigatedinmoredetailonpage10.
Thereisevidencetosuggestthatlessrationalfactorsfeedintothedecision-makingofindividualswithlowernumeracyand/orfinancialliteracyskills.Forexample,researchindicatesthatlessnumerateindividualsattachmoreimportancetoshort-termcostsandbenefitsthanthosethatmayoccurinthedistantfuture6.Furthermore,experimentshaveshownthatthosewithmoreadvancedfinancialliteracyskillsaremoreeffectiveatmakingfinancialjudgementsoverthelong-term.Forexample,HastingsandMitchell(2011)7findalinkbetweenfinancialliteracyandimpatiencewhenexploringinvestmentdecisions,thatsuggests‘thosewhochoosetodeferpaymentforagreaterrewardaremorelikelytopossessabasicunderstandingofsimplemathandfinancialconceptsnecessarytomakeintertemporalfinancialdecisions’.Inaddition,andasoutlinedonpage14,evidencealsosuggeststhattheselessnumerategroupsuselessinformationwhenchoosingfinancialproducts,andaremorelikelytouseeasier-to-determinecharacteristicstosupporttheirdecision-making.
Demographicfactors
Thereareseveralstudiesthatdemonstratedifferencesinnumericaland/orfinancialliteracyskillsatagenderlevel.Acrossmostnumeracyandfinancialliteracystudies,menweregenerallyfoundtoperformatahigherlevelthanwomen.Forexample,onnumeracyskillsspecifically,theSkillsforLifeSurveyrunbyBISshowsthatwomenarelesslikelytobeatEntryLevel3orabove(73%of
6Frederick(2005)CognitiveReflectionandDecisionMaking7HastingsandMitchell(2011)Howfinancialliteracyandimpatienceshaperetirementwealthandinvestmentbehaviors8AlmenbergandDreber(2011)Gender,financialliteracyandstockmarketparticipation.9LusardiandMitchell(2009)Howordinaryconsumersmakecomplexeconomicdecisions:Financialliteracyandretirementreadiness.10LusardiandMitchell(2007)Financialliteracyandretirementpreparedness:Evidenceandimplicationsforfinancialeducation.
womenvs.79%ofmen).Mostacademicsourcesagreedthatlowerlevelsofnumeracyand/orfinancialliteracycanpotentiallyleadtowomenhavinglowerlevelsofengagementwithfinancialmarketsgenerally.AlmenbergandDreber(2012)8concludethatgenderdifferencesinfinancialliteracycanexplainasignificantpartofthegendergapinstockmarketparticipation,whileLusardiandMitchel(2009)9findthatwomenarelesslikelytoplanforretirement.However,whilemanyauthorsrelatethisbacktolowerlevelsoffinancialliteracy,somearguethatotherfactorsareatplay.Forexample,Lusardi(2012)notesthatwomenaremorelikelytoindicatethattheydonotknowtheanswertoafinancialliteracyquestion,whichmayindicatealackofconfidenceinfinancialknowledgeratherthanlackofactualknowledge(furtherdetailsonconfidenceinrelationtogendercanbefoundonpage10).
Thereisalsoaconsistentgapinlevelsofnumeracyandfinancialliteracybysocio-economicstatusandeducationattainment,withvarioussourcessubstantiatingthispoint.LusardiandMitchell(2007)10emphasisewherethegapsinlevelsofnumeracyandfinancialliteracytypicallylie–‘lessfinanciallyknowledgeablerespondentsweremorelikelytobesingle,relativelyuneducated,relativelylowincome,minority,andeitheryoungorold(notmiddle-aged)’.
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Financialconfidence
Financialliteracy
Whiletherearefewstudiesthatfocusonthetopicoffinancialconfidenceinrelationtonumeracyspecifically,thereissomeevidencetosupporttheviewthatlowerlevelsoffinancialliteracycanimpactonconfidenceinmanagingmoney.TheAustralianCommonwealthBankFoundationciteresearch11thatshowslevelsofconfidenceinrelationtosavingmoneyandwithstandingfinancialpressurearehigheramongstindividualswithhigherfinancialliteracyscores.Inaddition,thereisevidencethatindicatesthatlowerlevelsoffinancialconfidencecanimpactonengagingwithfinancialmattersandtakingoutfinancialproducts.Forexample,manyindividualsaredeterredfromenteringthestockmarketbecauseoflowlevelsoffinancialconfidence,underpinnedbyalackofknowledgeandunderstanding;studiesamongstDutch12andAmerican13adultsemphasisethispoint.
Ontheotherhand,studiesshowthatlevelsofover-confidenceinrelationtofinancialliteracycanalsohavepotentiallynegativeimpacts.LusardiandMitchell(2007)14citeevidencefromGermany,UnitedStates,UnitedKingdomandAustraliathatdemonstrateamismatchbetweenhighlevelsofconfidenceinunderstandingfinancialissues,andfarlowerlevelsofactualcomprehension.Theauthorsconcludethiscouldhaveanegativeimpactintermsof‘seekingoutprofessionaladvice,thuswideningthe‘knowledgegap’’.Havingsaidthat,thesameauthorsfindastrongcorrelationbetween'objectiveandsubjectiveliteracy'ina2009paper15;thatis,highlevelsoffinancialliteracyareassociatedmorestronglywiththosewhoreporthighlevelsofeconomicknowledge.
11CommonwealthBankFoundation(2004)ImprovingfinancialliteracyinAustralia:benefitsfortheindividualandthenation.Keyfindings12AlmenbergandDreber(2011)Gender,financialliteracyandstockmarketparticipation.13LusardiandMitchell(2011)Theoutlookforfinancialliteracy14LusardiandMitchell(2007)Financialliteracyandretirementpreparedness:Evidenceandimplicationsforfinancialeducation.15LusardiandMitchell(2009)Howordinaryconsumersmakecomplexeconomicdecisions:Financialliteracyandretirementreadiness.16Palameta,Nguyen,Shek-waiHui,Gyarmati(2016)Thelinkbetweenfinancialconfidenceandfinancialoutcomesamongworking-agedCanadians17Huddleston-Casas,DanesandBoyce(1999)ImpactEvaluationofaFinancialLiteracyProgram:EvidenceforNeededEducationalPolicyChange18BISResearchPaperNumber267(2016)ImpactofPoorEnglishandMathsSkillsonEmployers:LiteratureReview
TheissueofconfidenceinafinancialcontextisalsoinvestigatedaspartofastudyundertakenbytheFinancialConsumerAgencyofCanada16,whichexplorestherelationshipbetweenknowledge(i.e.understandingoffinancialmatters),skills(theabilitytoapplyfinancialknowledgeineverydaylife)andconfidence(theself-assurancetomakeimportantdecisions).Thefindingsshowedthatfinancialconfidenceisinfactabetterpredictorthanfinancialknowledgewhenitcomestooutcomesassociatedwithday-to-daymoneyanddebtmanagement.Italsoshowedthatthosewithhighlevelsofknowledgearelikelytoexperiencerelativelypooroutcomesiftheyalsohavelowlevelsoffinancialconfidence,whilethosewhohaverelativelylowlevelsofknowledgeachievegoodoutcomesintheseareasiftheyhavehighlevelsoffinancialconfidence.Inlinewithfindingsrelatedtofinancialliteracy,thestudyfoundthatgroupswithlowerlevelsoffinancialconfidenceincludedwomen,thoselivinginlow-incomehouseholdsandthosewithlowerlevelsofeducationalattainment.
Thereisevidencetosuggestthatdedicatedfinancialeducationprogrammeshaveapositiveimpactnotonlyonlevelsoffinancialknowledge,butalsoinrelationtoconfidence.Forexample,inafinancialtrainingprogrammerunwithhighschoolstudentsspecifically,Huddleston-Casas,DanesandBoyce(1999)17foundthatamongstthosewhoparticipatedintheprogramme,theproportionwho‘almostalways’feltconfidentaboutmakingdecisionsthatdealtwithmoneyincreasedfromaroundafifthbeforetheprogrammetoaroundhalfthereafter.Inaddition,inaLiteratureReviewundertakenbyBIS18onworkplaceEnglishandMathsskills,theauthorsciteevidencefromvariousinternationalprogrammesthatdemonstratework-basedliteracyandnumeracyprogrammescanimproveemployeeconfidenceandmorale.
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However,therearesomeindicationsthatthosewhobelievetheirnumeracyskillstobelackingarelesslikelytowanttoimproveinthisarea,makingitpotentiallydifficulttoengagethosewithlownumeracy,butwhocouldgaingoodlevelsoffinancialconfidence.BynnerandParsons(2006)19undertookananalysisoflongitudinalBritishCohortStudiesandfoundthat‘'aroundthree-and-a-halftimesasmanymenandwomenwithEntryLevel2numeracywantedtoimprovetheirnumericalskillsincomparisonwithmenandwomenwithLevel2numeracy’.
Demographicdifferences
Gapsbetweenperceivedandactuallevelsoffinancialliteracyalsovarydependingonarangeoffactors.LusardiandMitchell(2011)20undertakefurtheranalysisofself-assessedfinancialknowledgeinrelationtoactuallevelsoffinancialliteracy.Theresultsshowthatthosefromyoungeragegroups(whoaremorelikelytohavelowerlevelsoffinancialliteracy)aremoreaccurateatself-assessingtheirfinancialknowledgethanolderagegroups,whereactualfinancialliteracyislowbutself-assessedfinancialknowledgeishigh.Inaddition,researchshowsthatincomeandeducationimpactsonlevelsoffinancialconfidence.
19BynnerandParsons(2006)NewLightonLiteracyandNumeracy;ResultsoftheLiteracyandNumeracyAssessmentintheAge34follow-upofthe1970BritishCohortStudy20LusardiandMitchell(2011)FinancialliteracyandretirementplanningintheUnitedStates.21SchagenandLines(1996)FinancialLiteracyinAdultLife:AReporttotheNatWestGroupCharitableTrust,Slough,Berkshire22Sole(2014)FinancialLiteracy:AnEssentialComponentofMathematicsLiteracyandNumeracy23FINRAInvestorEducationFoundation(2012)FinancialCapabilityintheUnitedStatesReportofFindingsfromthe2012NationalFinancialCapabilityStudy
ApaperbySchagenandLines(1996)21focussedonavarietyoffactorsofday-to-daymoneymanagement;groupssuchassingleparentsonbenefits,familiesinrentedaccommodationandstudentsweremorelikelytoratetheirconfidenceincarryingoutavarietyofday-to-dayfinance-relatedtaskslowerthanthegeneralpublic.
Thereisalsoevidencetosuggestthatwomenarelessconfidentintheirfinancialcapabilitythanmen.Forstudentsspecifically,ChenandVolpe(2002)concludethat‘collegewomenwerefoundtobelessconfident,lessenthusiastic,andlesswillingtoincreasetheirknowledgeofpersonalfinancecomparedtocollegemen’22.Perhapsrelatedtothis,therearewell-establisheddifferencesinriskbehaviourbetweenmenandwomen,withaUnitedStatesstudyshowingthatmenaremorethantwiceaslikelytobewillingtotakefinancialrisks23.
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Managingday-to-day
Numeracy
Studiesclearlyhighlighttherelationshipbetweennumeracy,financialliteracyandday-to-dayfinancialmanagement.Activitiessuchasmanagingaphonecontract,payingutilitybillsandkeepingtrackoffinancesgenerallytendtobemorechallengingforthosewhoexhibitlowerlevelsofnumeracy,financialliteracyandknowledgeoffinancialmatters.
Thelinkbetweenday-to-dayfinancialmanagementandnumeracyspecifically,isevidencedmostdirectlyinthelatestSkillsforLifeSurveyrunbyBIS(DepartmentofBusiness,InnovationandSkills)24.Whenfocussingonthefrequencyofcheckingbillsorbankstatements,itfoundthatthosewhoscoredlowerinnumeracyassessmentswerelesslikelytochecktheirbillsonaregularbasis.Forexample,only5%ofthosewhocheckbillsorbankstatementsmorethanonceaweekhavenumeracylevelsofEntryLevel1orbelow,comparedtoathird(33%)atLevel1andaquarter(24%)atLevel2orabove.Thetablebelowoutlinesthedifferencesbetweennumeracylevelandfrequencyofcheckinginfull.
Figure1:Numeracylevelsbyfrequencyofcheckingbillsorbankstatements1
However,thisstudyalsohighlightedtherolethatotherfactorsbesidesnumeracycanplayinhowfrequentlyindividualschecktheirfinances,suchasalackofinterestgenerallyanddealingwithbanksonalessfrequentbasis.Forexample,thestudyfoundthatrespondentsagedbetween16and19,werejustaslikelyasotheragegroupstoratetheirmathsskillspositively,butwerethemostlikelytoavoidcheckingbillsandstatements(17%,comparedto6%overall).
Atkinson(2007)25findsthat‘makingendsmeet’ismorechallengingforthosewithlowerliteracyandnumeracyskills.Sheunpickstherelationship
24BISResearchPaperNumber81(2012)The2011SkillsforLifeSurvey:ASurveyofLiteracy,NumeracyandICTLevelsinEngland25Atkinson(2007)Financialcapabilityamongstadultswithliteracyandnumeracyneeds
betweenday-to-daymanagementandnumeracyaspartofhersecondaryanalysisoftheBaselineSurveyofFinancialCapability(BSFC),originallyundertakenonbehalfoftheFinancialServicesAuthority(FSA,predecessortotheFCA)in2005.Whilethesurveydidnotdirectlyidentifythosewithnumeracydifficulties,Atkinsonconcentratedonthreegroupsofadultswhowerelikelytohaveliteracyandnumeracyneedsasaproxy:
• GroupA:thosewithnoqualificationaboveaGCSEgradeD-Gorequivalent,
• GroupB:thosewithnoformaleducationalqualificationsatall
• GroupC:thosepeoplewhowerebornintheUKbuthaddifficultyreadingEnglish.
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UsingfactoranalysisonaseriesofattributesfromtheBSFC,thestudydevelopedasetofskillsmetricsrelatingtofinancialcapability.Ontheskillsmetric‘makingendsmeet’,thosewithliteracyandnumeracyneedsweremorelikelytoberatedpoorly,withGroupAinparticularlikelytostruggleonthismeasure(28%wereofthisgroupwereinthelowestperformingquintile).
Financialliteracy
Asimilarpatternemergeswhenexploringthelinkbetweenmanagingday-to-dayandfinancialliteracy.AstudyrunbytheCommonwealthBankofAustralia(CBA)in2004wasthefirstofitskindtoexplorethelinkbetweenfinancialliteracyandoutcomesforindividualsinAustralia26.Itfoundthatlowerfinancialliteracyscoreswerecloselyrelatedtorespondentsbeingunabletopaytheirmobilephone,utilityandcreditcardsbills.Ultimately,thisstudydemonstratedthattherearesignificanteconomicbenefitstoindividualswithhigherlevelsoffinancialliteracy,intermsoflowerunemploymentratesandhigherincomes.
26MarcolinandAbraham(2006)Financialliteracyresearch:currentliteratureandfutureopportunities27HogarthandHilgert(2002):FinancialKnowledge,ExperienceandLearningPreferences:PreliminaryResultsfromaNewSurveyonFinancialLiteracy28HogarthandHilgert(2003):HouseholdFinancialManagement:TheConnectionbetweenKnowledgeandBehavior
Thereisalsostrongevidencethathighlightsalinkbetweenthosewhoscorehigheronfinancialliteracytestsandfollowingrecommendedfinancialpractices.HogarthandHilgert(2002)27findastrongcorrelationbetweenthosewhoscorehigheronfinancialliteracytestsandfollowingrecommendedfinancialpracticessuchaspayingallbillsontimeandhavinganemergencyfund.Inspiteofthis,thesameauthors28placedoubtonthecausalityofthisrelationship(thatanincreaseinfinancialliteracyandknowledgeimprovesbehaviour)arguinginsteadthatknowledgemayincreaseaswealthincreases,orotherfactorssuchasfamilyexperiencesandeconomicbackground,mayaffectbothknowledgeandbehaviour.
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Choosingproducts
Numeracy
Evidencesuggeststhathigherlevelsofnumeracycanpositivelyimpactonconsumerproductchoice.Forexample,astudyundertakenbytheInstituteforFiscalStudies29–focussingonlevelsofbasicnumeracyamongstacohortofpeopleapproachingretirementinEngland–foundstrongpositivecorrelationsbetweennumeracylevelsandproductchoicesaroundretirementplanning.Thesecorrelationspersistedwhencontrolledforotherfactorsincludingeducationandwealth.Inaddition,inAtkinson’sanalysisoftheBaselineSurveyofFinancialCapability(BSFC)(2007)30–outlinedindetailonpage12–shefindsallthreegroupslikelytoexhibitnumeracyneedstoperformlowerthanaverageonfinancialcapabilityscoresrelatingtochoosingproducts.
Financialliteracy
Asimilarpatternappliestotherelationshipbetweenproductchoiceandfinancialliteracy.Allianzrecentlypublishedastudy31lookingatfinancialdecision-makingacrossEurope.Theresearchmeasuredlevelsoffinancialliteracy(basedonfivequestions)fortenEuropeancountries,andanalysedthisagainstaseriesofproductchoices.Thestudyfoundthatthosewithhigherlevelsoffinancialliteracywereconsiderablymorelikelytorecognisethebestfinancialproduct–63%ofthemostfinanciallyliteratechosethebestfinancialproductinatleasttwooutofthreecases,comparedto22%amongthelessknowledgeablerespondents.Inaddition,ondebtliteracyspecifically,LusardiandPeter(2015)findthatthosewithlowerlevelsoftendtotransactin‘high-costmanners,incurringhigherfeesandusinghigh-costborrowing’.
29BanksandOldfield(2007)Understandingpensions:Cognitivefunctions,numericalabilityandretirementsaving30Atkinson(2007)Financialcapabilityamongstadultswithliteracyandnumeracyneeds31Allianz(2017)Whenwillthepennydrop?Money,financialliteracyandriskinthedigitalage2017report32VanRooij,LusardoandAlessie(2011)Financialliteracyandstockmarketparticipation
Decision-makingprocess
Thereisevidencetosuggestthatthosewithlowerlevelsofnumeracyand/orfinancialliteracyaremoreinclinedtobasetheirfinancialdecisionsonlessrationalfactors.Atkinson(2007)findsthatgroupslikelytoexhibitnumeracyneedswere‘lesslikelytohaveusedanyinformationtoinformtheirchoiceofproduct,ortohavecomparedkeyfeatures’.Furthermore,ataninternationallevel,HastingsandTejeda-Ashton(2008)focussedonhowworkersviewinvestmentfundsinMexico,inthecontextofitsprivatisedsocialsecuritysystem.Thefindingsdemonstratedthattheinvestmentchoicesamongstthosewithlowerlevelsoffinancialliteracyweremorelikelytobebasedoneasier-to-determinecharacteristicssuchasbrandname,overfeesandpastreturns.
Therearealsodifferencesintheadvicethatindividualsseekdependingonlevelsoffinancialliteracy.HastingsandTejeda-Ashtonfoundthatthosewithlowerlevelsoffinancialliteracyaremorelikelytorelyonemployersandword-of-mouthintheirinvestmentchoices.Indeed,womenandlow-incomeindividualsinparticular(groupsthattypicallyexhibitlowerlevelsoffinancialliteracy)weremorelikelytorelyonemployeradviceaspartofthisdecision-makingprocess.Conversely,inastudyfocussedonDutchadults,VanRooij,LusardiandAlessie(2011)32foundthat,whenaskedaboutthemostimportantsourceofadvicemakingimportantfinancialdecisionsforthehousehold,thosewhodisplayhighlevelsofadvancedliteracyare‘muchlesslikelytorelyoninformalsourcesofinformationsuchasfamilyandfriends,andmuchmorelikelytoreadnewspapersandmagazines,consultfinancialadvisors,andseekinformationontheInternet’.
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PlanningaheadThereisawealthofevidenceavailablefocussingonthelinkbetweennumeracy,financialliteracyandlong-termfinancialplanning.Moststudiespointtoastrongrelationshipbetweenhighlevelsoffinancialknowledge,financialliteracyand/ornumeracy,andeffectivefinancialplanning.
Numeracy
TheInstituteofFiscalStudiesexploredthelinkbetweennumeracyandsavingforretirementaspartofa2006report33.Theanalysisfocussedonthe2002waveoftheEnglishLongitudinalStudyofAgeing(ELSA)–arepresentativesurveyof11,400individualsinEnglandaged50andover.Thestudyfoundthatnumeracyimpactsonbothattitudestowardsandunderstandingofretirementplanning.Therewasapositivecorrelationbetweennumeracyandmeasuresofretirementsavingandinvestmentportfolios,evenwhencontrolledforothercognitiveabilityandeducation.Inaddition,numeracyiscorrelatedwithknowledgeofpensionarrangements,andwithperceivedfinancialsecurity,evenwhencontrolledforothercognitiveability,educationandthelevelofoverallretirementsaving.
Lusardi(2011)34focussesonhowspecificaspectsofnumeracyimpactonfinancialplanning.Shefindsthatunderstandingofinterestcompoundingislow,whichshearguesisconcerninggiventhatcalculationsaboutcompoundinterestformapartofmostfinancialdecisions.Thestudyfindsthatthosewhocannotdoa2%interestratecalculationaremuchlesslikelytoplanforretirementandaccumulatewealthmoregenerally,citingevidencefromtheUnitedStates,Russia,SwedenandtheNetherlands.
33InstituteforFiscalStudies(2006)UnderstandingPensions:CognitiveFunction,NumericalAbilityAndRetirementSaving34Lusardi(2011)Numeracy,FinancialLiteracy,andFinancialDecision-Making35LusardiandMitchell(2009)HowOrdinaryConsumersMakeComplexEconomicDecisions:FinancialLiteracyandRetirementReadiness36Bucher-Koenen,TabeaandLusardi(2011):FinancialLiteracyandRetirementPlanninginGermany37KlapperandPanos(2011)Financialliteracyandretirementplanning:theRussiancase.38BrownandGraf(2013)FinancialLiteracyandRetirementPlanninginSwitzerland
Financialliteracy
Therearevariousinternationalstudiesthatfurtherexaminetherelationshipbetweenfinancialliteracyandretirementplanning.Forexample,LusardiandMitchell(2009)35focusontheretirementplanningofAmericanadults,andfindthatfinancialliteracyishighlyinfluentialinthisprocess.Thestudyestablishedlevelsoffinancialliteracybyanalysingresponsestoquestionsonbasicfinancialconceptssuchasnumeracy,compoundinterest,inflationandriskdiversification.Analysingthisdata(throughamultivariateregression)againstthequestion‘howmuchhaveyouthoughtaboutretirement?’thedatashowedthatevenwithdemographicandsocio-economicfactorsheldconstant,financialliteracyisindeedinfluentialinretirementplanning.Inaddition,theanalysisfoundthatsophisticatedfinancialknowledgeisthemostimportantfactoroverothersinthisdecision-makingprocess.
Bucher-Koenen,TabeaandLusardi(2011)36explorethelinkbetweenfinancialliteracyandretirementplanningamongstGermanadults.Thestudymeasuresfinancialliteracybyaskingquestionsrelatingtointerest,inflationandrisk,andanalysestheresultsagainstself-reportedlevelsofretirementplanning.Thestudyfindsthatthosewhoanswerthefinancialliteracyquestionscorrectlyaremorelikelytohaveplannedforretirementand,afterrunningmultivariateanalysis,showsthatfinancialliteracyandretirementplanningarepositivelycorrelated.Similarly,studiesamongstindividualsinRussia37andSwitzerland38alsofindcorrelationsbetweenhighlevelsoffinancialliteracyandretirementplanning.
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Thereisalsoevidencethathighlightsalinkbetweenfinancialliteracyandinvestinginthestockmarket.Christelis,JappelliandPadula(2006)39focusonthelinkbetweenportfoliochoiceandcognitiveabilitybyfocussingonthreedomainsofcognitiveabilities:numeracy,verbalfluencyandmemory.Throughaseriesofregressions,thestudyconcludesthatallthreehaveanindependenteffectonthedecisiontoholdstocks(asthemultivariateanalysiscontrolsforeducation)and‘supportthehypothesisthathighercognitiveabilities,throughtheirassociationwithlowerriskaversion,lowerinformationcosts,orhigherperceivedSharperatio,raisestockmarketparticipation.'Inaddition,Lusardi(2011)40citesvariouspapersthatreachasimilarconclusiononthelinkbetweenfinancialliteracyandstockmarketparticipation.
39Christelis,D.,T.Jappelli,andM.Padula(2006)Cognitiveabilitiesandportfoliochoice40Lusardi(2011)Numeracy,financialliteracy,andfinancialdecision-making41SchagenandLines(1996)FinancialLiteracyinAdultLife:AReporttotheNatWestGroupCharitableTrust42Frederick(2005)CognitiveReflectionandDecisionMaking43AlmembergandGerdes(2011)ExponentialGrowthBiasandFinancialLiteracy
Demographicandattitudinaldifferences
Moststudiespointtowardsadifferenceinattitudestowardslong-termfinancialplanningatademographiclevel,witholder,wealthierandmoreeducatedindividualsmorelikelytotakeamoreactiveapproachtosavingandinvestments41.Furthermore,atadeeper,moreemotionallevel,thereissomeresearchtoindicatethatlessnumerateindividualsattachmoreimportancetoconsumerdecisionsintheshorttermoverlong-termfinancialplanning.Studieshaveshownthatindividualswhoarelessnumerateandhavelowercognitiveabilitywillbemorelikelytobeinfluencedbyshort-termcostsandbenefitsthanthoseoccurringinthedistantfuture42.Inaddition,astudyofSwedishadults43exploredlevelsofexponentialgrowthbias(i.e.underestimatingthefuturevalueofinvestmentsratherthanoverestimating)inrelationtolevelsoffinancialliteracybyaskingsurveyparticipantstopredictthelong-termvalueofaninvestment.Itfoundthatthosewithmoreadvancedfinancialliteracyskillswerelesslikelytoexhibitexponentialgrowthbias.
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Interventions
Theroleofnumeracyinfinancialeducation
Yetthemeritofincorporatingnumeracyintowiderfinancialeducationprogrammesisnotclear-cut.Asnotedearlier,manyother(oftenlessrational)factorsfeedintofinancialdecision-making,andithasalsobeendifficulttodrawacausaleffectbetweenfinancialeducationprogrammesandfuturebehaviour44.Inaddition,interestineducationprogrammesisoftenloweramongsttheindividualsthatwouldyieldthemostbenefitfromthem.Asnotedearlier,BynnerandParsons(2006)45demonstratethatthosewhohavemoreadvancednumeracyskills,arealreadymorelikelytowanttodeveloptheirskills.MeanwhileMeierandSprenger(2007)46findthatfuture-orientedpeoplearethemostlikelytoagreetoattendfinancialeducationprogrammes(agroupthataremorelikelytomanagetheirpersonalfinancesbetter),andthusconcludethat‘selectionintofinancialeducationcontributestoanoverestimationofpositiveimpacts’.
Therearealsoconcernsaroundtheformatfinancialeducationprogrammesshouldtake,andtheextenttowhichnumeracyshouldplayarole.Carpena,Cole,ShapiroandZia(2011)47considerthevalueofcombiningnumeracywithwiderfinancialeducationprogrammes.InastudythatfocussesontheimpactsofafinancialeducationprograminIndia(relatingtosavings,credit,insuranceandbudgeting),theyfindthatfinancialeducationhasapositiveimpactonchangingindividuals’awarenessofandattitudestowardsfinancialproducts.However,theauthorsconcludethatfinancialeducationhaslimitedeffectsinincreasingfinancialnumeracybutdoesinfluenceawarenessofandattitudestowardsfinancialproductsandfinancialplanningtools.Theythereforesuggestthat‘measuringfinancialliteracyshouldnotexclusivelyfocusonquestionsthatrequirehighnumeracy
44BrimbleandBlue(2013)TailoredFinancialLiteracyEducation:AnIndigenousPerspective45BynnerandParsons(2006)NewLightonLiteracyandNumeracy;ResultsoftheLiteracyandNumeracyAssessmentintheAge34follow-upofthe1970BritishCohortStudy46Collins&O’Rourke(2010).FinancialEducationandCounseling—StillHoldingPromise47Carpena,Cole,Shapiro,Zia(2011)UnpackingtheCausalChainofFinancialLiteracy48KaiserandMenkhoff(2016)DoesFinancialEducationImpactFinancialBehavior,andifSo,When?49InstituteforFiscalStudies(2006)UnderstandingPensions:CognitiveFunction,NumericalAbilityAndRetirementSaving
skills…makingindividualsandhouseholdsmoreawareaboutthedetailsoffinancialproducts,orchangingtheirattitudestowardspurchasingandrecommendingformalfinancialproductsandservices…maybeasimportant,ifnotmore,thanenhancingnumeracyskills.’
Effectiveinterventions
Manysourcespromotetheuseofnumeracyand/orfinancialeducationprogrammesinordertopositivelyinfluencedecisionsaroundchoosingproductsandfinancialbehaviourmoregenerally.Thereisevidencethatsuchprogrammeshavethedesiredeffect;basedonareviewofover100financialeducationprogrammesacrosstheWorld,KaiserandMenkhoff(2016)48findthatfinancialeducationhasademonstrablypositiveimpactonfinancialliteracy,aswellasapositiveimpactonbehaviour(thoughtoalesserextent).Theseprogrammesareoftentargetedatgroupswithlownumeracyneeds.Forexample,theInstituteofFiscalStudiesreport49(outlinedinfurtherdetailonpage17)findsapositivecorrelationbetweennumeracyandmeasuresofretirementsavingandinvestmentportfolios,andthereforerecommendstargetingrelevantinformationatlownumeracygroups(aswellaslowincomeandloweducationgroupswhoaremorelikelytohavenumeracyneeds).
However,aspreviouslymentioned,thosewhohavethelowestnumeracyskillsareoftenhardtoengageinsuchinterventionprograms.Therefore,thereisnoconclusiveevidenceacrosstheexistingliteratureastowhichtypesofinterventionsaremosteffective.Alltypesofprogramsappeartohavepositiveimpactonthosewithfairtogoodnumeracy;butanalysingwhicharemosteffectiveforthosewhoneedthemmostprovesdifficult.
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Currentevidenceandknowledgegaps-recommendations
Knowledgegaps
Itisdifficulttoascertainspecificeverydaybarrierstomanagingmoney;literatureoutlineswhatisstruggledwith(e.g.payingaphonebill),butnotwhy.Also,whilst‘short-termattitudes’arefrequentlymention,thesearenotspecificallyoutlinedandarecertainlynotexploredinanydetail.Furtherqualitativework,suchasface-to-faceinterviewsorethnographieswouldenableempiricalevidencetobegatheredthatcouldprovideunderstandinginboththeseareas.
Inaddition,thereisalsoadistinctlackofinformationonfinancialcapabilityandethnicity,withgender,incomeandeducationbeingthedemographicfactorsmostfocussedon.
Considerationsforadultbasicskillspolicy
Itisimportanttoacknowledgethatwhileverypoornumeracymakesfinancialliteracydifficult,itisnotnecessarilythecasethatrelativelypoornumeracyislinkedtopoorfinancialliteracy.Therefore,interventionsthataimtohelpindividualsunderstandtheideasbehindfinancialproductsmaybemoreappropriatethanthosethatteachnumeracyalone.Thismayalsohelpengagethosewhobelievetheirnumeracyskillstobelackingandarethereforeputoffexistinginterventions.
Itisalsoclearfromtheevidenceanalysedherethatfinancialconfidencemakesforgreaterfinancialcapabilityandbetterdecisions(andviceversa).Therefore,interventionsshouldaimtobuildfinancialconfidence,especiallyinunderstandingfinancialproducts.
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Conclusions
Numeracyandfinancialcapability
Therearevarioussourcesthatdemonstrateastrongcorrelationbetweennumeracyand/orfinancialliteracyandlevelsoffinancialcapability–thosewhoexhibitmoreadvancednumeracyand/orfinancialliteracytendtobemoreeffectivefinancialdecision-makers.Yetthereislessevidencethatshowsacausalrelationship,withbackground,generaleducationandwealthallfeedingintothiscomplexdynamic.Furthermore,lessrationalchoicefactorsarealsofoundtoplayasignificantroleinthefinancialdecision-makingprocess,particularlyforlessnumerateindividuals.
Atademographiclevel,severalstudieshighlightagendergaponbothnumeracyandfinancialliteracy,withmenconsistentlyperformingmorestronglythanwomenintheseareas.Thisimpactsonfinancialdecisions;forexample,womentendtobelesslikelytoplanforretirementandparticipateinthestockmarket.Therearealsoconsistentgapsacrossotherdemographics,withthosefromlowerincomes,minoritybackgroundsandlowerlevelsofeducationfoundtoperformmorepoorlyonnumeracyandfinancialliteracytests.
Financialconfidence
Lowerlevelsoffinancialliteracycanimpactonconfidenceonmakingfinancialdecisions,suchasmanagingmoneyandtakingoutfinancialproducts.However,thereisalsoadetrimenttobeingover-confidentinrelationtofinancialliteracy,withsuchindividualslesslikelytoseekprofessionaladviceandpotentiallymakingpoorerdecisionsasaresult.Furthermore,oneCanadian-basedstudyhighlightedthatconfidenceisabetterpredictoroffinancialoutcomes(relatedtoday-to-daymoneyanddebtmanagement)thanfinancialknowledgespecifically.Dedicatedfinancialprogrammescanhaveapositiveimpactinrelationtolevelsoffinancialconfidence,yetthosewhohavelowerlevelsofconfidenceintheirnumeracyskillsaretypicallylesslikelytowanttoimproveinthisarea.
Therearelargegapsbetweenperceivedandactuallevelsoffinancialliteracydependingondemographicandsocialbackground.Forexample,amongstolderagegroups,levelsofconfidencearehigherthanwarranted,whileyoungeragegroupsaremoreaccurateatself-assessingtheirfinancialknowledge.Womenarealsolesslikelytobeconfidentintheirfinancialcapability,andperhapsrelatedtothis,theyarelesslikelytobewillingtotakefinancialrisksmoregenerally.
Managingday-to-day
Thereisastronglinkbetweennumeracyskillsandday-to-dayfinancialmanagement.ThelatestSkillsforLifeSurveyrunbyBISshowsthatthosewithmoreadvancednumeracyskillsaremorelikelytocheckbillsorbankstatementsonaregularbasis.Similarly,severalstudieshighlighttherelationshipbetweenmanagingday-to-dayandhighlevelsoffinancialliteracy.AstudyfromAustralia,forexample,demonstratedthatlowerfinancialliteracyscoresarecloselyrelatedtopaymentofmobilephone,utilityandcreditcardbills.
However,theevidencetosupportthisrelationshipisusuallycaveatedbyotherfactors.Thosewhoarelesslikelytokeepontopofday-to-dayfinancialmanagementmaytakelessofaninterestgenerally,whilebackgroundfactorssuchasincomeandeducationcanplayarole,againunderminingthecaseforacausalrelationship.
Choosingproducts
Variousstudieshighlighttherelationshipbetweennumeracyand/orfinancialliteracyandproductchoice.Forexample,theInstituteforFiscalStudiesfoundstrongcorrelationsbetweennumeracyandproductchoicesaroundretirementplanning,evenwhencontrolledforfactorssuchaseducationandwealth.Thereisalsoevidencethatshowsthosewithlowerlevelsofnumeracyand/orfinancialliteracymakefinancialchoicesusinglessinformation,andbasethesedecisionsonlessrationalfactors.Ontheotherhand,thosewithmoreadvancednumeracyand/orfinancialliteracytendtousesourcessuchasfinancialadvisors,andmakebetterinformeddecisionsmoregenerally.
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Planningahead
Severalstudiesdemonstrateastronglinkbetweennumeracyand/orfinancialliteracyandplanningahead,particularlyinrelationtoretirementplanning.EvidencefromtheUKandinternationallydemonstratesapositivecorrelationinthisarea,whichpersistswhencontrolledforarangeofdemographicfactors.Inaddition,asimilarpatternemergeswhenfocussingonthelinkbetweenfinancialliteracyandinvestmentinthestockmarket.Generally,long-termfinancialplanningismorelikelytobeundertakenbyolder,wealthierandmoreeducatedindividuals,withthesegroupstakingmoreofanactiveapproachtosavingsandinvestments.Atanattitudinallevel,thereisalsosomeevidencethatindicateslessnumerateindividualsaremoreliketoconsidershort-termoverlong-termfinancialplanning.
Interventions
Thereareseveralstudiesthatdemonstratethepositiveimpactoffinancialeducationprogrammesintermsofadvancingfinancialliteracyandencouragingbehaviourchange.Manyoftheseinterventionsaretargetedatgroupsthatexhibitlowlevelsofnumeracyand/orfinancialliteracy.However,suchgroupstendtobelesslikelytotakepartinfinancialeducationinitiatives,thusunderminingthepositiveimpactsthatsuchprogrammescanhave.Thereisalsosomedebatearoundtheextenttowhichnumeracyshouldplayaroleinfinancialeducationprogrammes–onestudysuggeststhateducatingconsumersonpurchasingdecisionsandmakingthemmoreawareaboutfinancialproductsandservicescouldpotentiallyhavemoreofapositiveimpactthanfocussingonnumeracyskillsspecifically.
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ReferencesAllianz(2017)Whenwillthepennydrop?Money,financialliteracyandriskinthedigitalage2017report
AlmenbergandDreber(2011)Gender,financialliteracyandstockmarketparticipation
AlmembergandGerdes(2011)ExponentialGrowthBiasandFinancialLiteracy
Atkinson(2007)Financialcapabilityamongstadultswithliteracyandnumeracyneeds
BanksandOldfield(2007)Understandingpensions:Cognitivefunctions,numericalabilityandretirementsaving
BISResearchPaperNumber81(2012)The2011SkillsforLifeSurvey:ASurveyofLiteracy,NumeracyandICTLevelsinEngland
BISResearchPaperNumber267(2016)ImpactofPoorEnglishandMathsSkillsonEmployers:LiteratureReview
BrimbleandBlue(2013)TailoredFinancialLiteracyEducation:AnIndigenousPerspective
BrownandGraf(2013)FinancialLiteracyandRetirementPlanninginSwitzerland
Bucher-Koenen,TabeaandLusardi(2011):FinancialLiteracyandRetirementPlanninginGermany
BynnerandParsons(2006)NewLightonLiteracyandNumeracy;ResultsoftheLiteracyandNumeracyAssessmentintheAge34follow-upofthe1970BritishCohortStudy
Carpena,Cole,Shapiro,Zia(2011)UnpackingtheCausalChainofFinancialLiteracy
Christelis,D.,T.Jappelli,andM.Padula(2006)Cognitiveabilitiesandportfoliochoice
CommonwealthBankFoundation(2004)ImprovingfinancialliteracyinAustralia:benefitsfortheindividualandthenation.Keyfindings
ColeandFernando(2008)Assessingtheimportanceoffinancialliteracy
Collins&O’Rourke(2010).FinancialEducationandCounseling—StillHoldingPromise
FINRAInvestorEducationFoundation(2012)FinancialCapabilityintheUnitedStatesReportofFindingsfromthe2012NationalFinancialCapabilityStudy
Frederick(2005)CognitiveReflectionandDecisionMaking,inJournalofEconomicPerspectives—Volume19,Number4—Fall2005—Pages25–42
HastingsandMitchell(2011)Howfinancialliteracyandimpatienceshaperetirementwealthandinvestmentbehaviors
HogarthandHilgert(2002):FinancialKnowledge,ExperienceandLearningPreferences:PreliminaryResultsfromaNewSurveyonFinancialLiteracy
HogarthandHilgert(2003):HouseholdFinancialManagement:TheConnectionbetweenKnowledgeandBehaviour
Huddleston-Casas,DanesandBoyce(1999)ImpactEvaluationofaFinancialLiteracyProgram:EvidenceforNeededEducationalPolicyChange
InstituteforFiscalStudies(2006)UnderstandingPensions:CognitiveFunction,NumericalAbilityAndRetirementSaving
KaiserandMenkhoff(2016)DoesFinancialEducationImpactFinancialBehavior,andifSo,When?
KlapperandPanos(2011)Financialliteracyandretirementplanning:theRussiancase
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LusardiandMitchell(2007)Financialliteracyandretirementpreparedness:Evidenceandimplicationsforfinancialeducation.
LusardiandMitchell(2009)Howordinaryconsumersmakecomplexeconomicdecisions:Financialliteracyandretirementreadiness.
LusardiandMitchell(2011a)FinancialliteracyandretirementplanningintheUnitedStates.
LusardiandMitchell(2011b)Theoutlookforfinancialliteracy
Lusardi(2011c)Numeracy,financialliteracy,andfinancialdecision-making
MarcolinandAbraham(2006)Financialliteracyresearch:currentliteratureandfutureopportunities
MoneyAdviceService (2015)Measuring financial capability– identifying thebuildingblocksUnderstandingwhatdrivesorinhibitsconsumers’financialwellbeingandresilience
Palameta,Nguyen,Shek-waiHui,Gyarmati(2016)Thelinkbetweenfinancialconfidenceandfinancialoutcomesamongworking-agedCanadians
SchagenandLines(1996)FinancialLiteracyinAdultLife:AReporttotheNatWestGroupCharitableTrust,Slough,Berkshire
Sole(2014)FinancialLiteracy:AnEssentialComponentofMathematicsLiteracyandNumeracy
VanRooij,LusardoandAlessie(2011)Financialliteracyandstockmarketparticipation
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Stayintouch+44(0)2076277700Ihello@breakingblueresearch.comIwww.breakingblueresearch.com
ThisworkhasbeenconductedinaccordancewithISO20252,theinternationalstandardformarketandsocialresearch.
OurpoliciesandproceduresadheretotheCyberEssentialsecurityscheme.
ALISONHULME ASSOCIATEDIRECTOR [email protected] +44(0)2076277724
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Appendices
1.1 Appendix1:Detailsofstudiesreferredto
Allianz(2017)Whenwillthepennydrop?Money,financialliteracyandriskinthedigitalageAllianzsurveyed1000peopleineachof10westernEuropeancountries(Austria,Belgium,France,Germany,Italy,theNetherlands,Portugal,Spain,SwitzerlandandtheUnitedKingdom).Theprocesswasconductedonline,withasampleprovidedbythesurveyresearchcompanySSI(SurveySamplingInternational–www.surveysampling.com).Thesampleswererepresentativeofthepopulationofeachcountrywithrespecttoage,sexandgeography.
AlmenbergandDreber(2011)Gender,financialliteracyandstockmarketparticipationAlmenbergandDreberusedatafromthe2010consumersurveycommissionedbytheSwedishFinancialSupervisoryAuthority.Thedatawascollectedthroughatelephonesurveyofanindependentrandomsampleofapproximately1,300Swedishresidentsthatarerepresentativeoftheadultpopulation.
AlmembergandGerdes(2011)ExponentialGrowthBiasandFinancialLiteracyAlmenbergandGerdesusedatafromthe2010consumersurveycommissionedbytheSwedishFinancialSupervisoryAuthority,asabove.
Atkinson(2007)FinancialcapabilityamongstadultswithliteracyandnumeracyneedsAtkinson’sstudyisbasedoninterviewsfromtheBaselineSurveyofFinancialCapabilitycommissionedbytheFinancialServicesAuthority(FSA),nowtheFinancialConductAuthority(FCA).Interviewswereconductedface-to-facebytheBritishMarketResearchBureau(nowknownasKantar)betweenJuneandSeptember2005.Interviewswereconductedwith5,328peopleacrosstheUK,usingarandomlocationsample.
BanksandOldfield(2007)UnderstandingpensionsBanksandOldfieldusedthe2002waveoftheEnglishLongitudinalStudyofAgeing(ELSA),whichisasurveyof11,392individualsthatprovidesarepresentativesampleoftheEnglishpopulationaged50andoveron29February2002.
BISResearchPaperNumber81(2012)The2011SkillsforLifeSurveyTheSkillsforLife2011Surveyadministered25-minute-long,computerisedassessmentsinliteracy,numeracyandICTtopicstorespondentsduringtheirinterviews.Additionalinformationwascollectedfromrespondentsduringtheface-to-faceinterviewstohelpunderstandthedemographic,socialandmotivationalfactorsrelatedtobasicskills.Inall,7,230interviewswereconductedbetweenMay2010andFebruary2011.
BrimbleandBlue(2013)TailoredFinancialLiteracyEducation:AnIndigenousPerspectiveBrimbleandBlue’sstudytookaliteracyprogramsuccessfullyruninanumberofnon-indigenoussettingsandtailoreditintermsofthecontent,deliveryandlogisticsforthispurposeinAustraliaandCanada.Datawascollectedfromparticipantsandfacilitatorstoexaminetheoutcomesoftheprogramandtheefficacyofthetailoredapproach.
BrownandGraf(2013)FinancialLiteracyandRetirementPlanninginSwitzerlandBrownandGrafusedarepresentativesurveycovering1,500householdstodocumenttheleveloffinancialliteracyinSwitzerlandandtoexaminehowfinancialliteracyisrelatedtoretirementplanning.
Bucher-Koenen,TabeaandLusardi(2011)FinancialLiteracyandRetirementPlanninginGermanyThisstudywasbasedondatafromarepresentativeGermanhouseholdpanel.Itwasfirstconductedin2001bytheMannheimResearchInstitutefortheEconomicsofAging(MEA).Consecutivewavesofthesurveywereinthefieldin2003/2004andeveryyearsince2005.In2009,2,222householdswereinthepanel.Thedatawascollectedduringtheearlysummerof2009.
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BynnerandParsons(2006)NewLightonLiteracyandNumeracyThisstudydrewondatafromthe1958and1970Britishbirthcohortstudies,whichhavefollowedupindividualsthroughouttheirlives,withnewdataaboutthecohortmemberscollectedatregularintervals.TheNationalChildDevelopmentStudy(NCDS)hasfollowedupall17,000individualsborninasingleweekin1958.The1970BritishCohortStudy(BCS70),whichisthesubjectofthisreport,hasfollowedupall16,500individualsborninasingleweekin1970.ThetwomainpartsofthesurveycomprisedtheCoreInterview,whichwascompletedby9,665cohortmembers,andtheParentandChildInterview,whichwascompletedby2,846cohortmembersincludinginformationon5,207oftheirchildren.Thesesampleswerefullyrepresentativeoftheoriginalcohort.
Christelis,Jappelli,andPadula(2006)CognitiveabilitiesandportfoliochoiceThisstudyusestheSurveyofHealth,AgeingandRetirementinEurope(SHARE).Thesurveyhasdetaileddataonwealthandportfoliocompositionofindividualsaged50+in11Europeancountriesandthreeindicatorsofcognitiveabilities:mathematical,verbalfluency,andrecallskills.CommonwealthBankFoundation(2004)ImprovingfinancialliteracyinAustraliaAnationaltelephonesurveywasconductedwith5000Australiansaged16–65years,betweenAugust18andSeptember9,2004,usingComputerAssistedTelephoneInterviewing(CATI).
FINRAInvestorEducationFoundation(2012)FinancialCapabilityintheUnitedStatesReportofFindingsfromthe2012NationalFinancialCapabilityStudyThisstudyusesdatafromthe2012and2009NFCSState-by-StateSurveys,eachofwhichwerenationwideonlinesurveysofover25,000Americanadults.
HastingsandMitchell(2011)HowfinancialliteracyandimpatienceshaperetirementwealthandinvestmentbehavioursThispaperusesexperimentalevidencederivedfromthe2009ChileanEncuestadeProtecciónSocial(EPSorSocialProtectionSurvey)toevaluatehowfinancialliteracyandimpatiencepredictsavingandinvestmentdecisions.TheEPSisanationallyrepresentativepanelofrespondentsfollowedeverytwoyears,fieldedbytheUniversityofChile’sMicrodataCenterincooperationwiththeUniversityofPennsylvania.
HogarthandHilgert(2002)FinancialKnowledge,ExperienceandLearningPreferences:PreliminaryResultsfromaNewSurveyonFinancialLiteracyTheFederalReservecommissionedadditionalquestionsregardingahousehold’sfinancialknowledge,experience,behaviours,learningexperiences,andlearningpreferencesinthemonthlySurveysofConsumers.Thesesurveysmeasurechangesinconsumerattitudesandexpectationswithregardtoconsumerfinancedecisions.Eachmonthlytelephonesurveyof500householdsincludesasetofcorequestionscoveringconsumerattitudesandexpectationsalongwithsocioeconomicanddemographiccharacteristics.ThequestionnairewasadministeredinNovemberandDecember2001;thedatacontainsinformationfrom1000respondents.
HogarthandHilgert(2003)HouseholdFinancialManagementStudybasedonsamedataasabove.Huddleston-Casas,DanesandBoyce(1999)ImpactEvaluationofaFinancialLiteracyProgramThisstudywasbasedon738surveystoteachersintheUSusingthefinancialeducationpartofthecurriculum;then188studentandteachersurveys.InstituteforFiscalStudies(2006)UnderstandingPensionsThisstudyusedthe2002waveoftheEnglishLongitudinalStudyofAgeing(ELSA)whichisasurveyof11,400individualsthatprovidesarepresentativesampleoftheEnglishpopulationaged50andoveronFebruary292002.
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KlapperandPanos(2011)Financialliteracyandretirementplanning:theRussiancaseThisstudyanalysesresultsofadetailedsurveyoffinancialliteracyadministeredtoanationallyrepresentativesampleof1,400Russianindividuals.Thesurveyincludesquestionsonfinancialliteracy,retirementplanning,andtheuseofvariousfinancialproductsaswellasdetaileddemographicandsocioeconomicinformation.LusardiandMitchell(2007)FinancialliteracyandretirementpreparednessThisstudyusesdatafromthe2004USHealthandRetirementStudytoevaluatewhetherBabyBoomersarerelativelywellinformedaboutfinancialmatters.Specifically,itfocusesonsome1,700EarlyBoomersage51-56in2004.
LusardiandMitchell(2009)HowordinaryconsumersmakecomplexeconomicdecisionsThisstudywasbasedontheHealthandRetirementStudy(HRS),anationallyrepresentativelongitudinaldatasetofAmericansovertheageof50.Forthe2004HRSwave,LusardiandMitchelldesignedandadministeredaspecialmoduleonfinancialliteracyandretirementplanning.MoneyAdviceService(2015)MeasuringfinancialcapabilityThisstudyisbasedonthe2015AdultFinancialCapabilitySurveyfortheUK.Thiswasamajorpieceofresearchinvolvingover3,500interviewswitharepresentativesampleoftheUKpopulation,supplementedbyadditionalinterviewsinthedevolvednationsandamongstyoungerconsumersaged18-24.
Palameta,Nguyen,Shek-waiHui,Gyarmati(2016)Thelinkbetweenfinancialconfidenceandfinancialoutcomesamongworking-agedCanadiansThisstudyuseddatafromthe2014CanadianFinancialCapabilitySurvey(CFCS)
SchagenandLines(1996)FinancialLiteracyinAdultLife:AReporttotheNatWestGroupCharitableTrust,Slough,BerkshireForthisstudy,MORIcarriedoutaface-to-facesurveyof772peoplewhofellintofive‘atrisk’groups.
VanRooij,LusardoandAlessie(2011)FinancialliteracyandstockmarketparticipationThisstudyuseddatafromthe2005DNBHouseholdSurvey(DHS).DHSisanannualhouseholdsurveycoveringinformationaboutdemographicandeconomiccharacteristicsandfocusingonwealthandsavingdata.ThepanelisrunbyCentERdata,asurveyresearchinstituteatTilburgUniversitythatspecializesininternetsurveys.ThedatasetisrepresentativeoftheDutchpopulation,anditcontainsover2,000households.InadditiontousingdatafromthemaincoreoftheDHS,thestudyalsouseddatafromtwomodules(addedtothesurveyin2005and2006)whichweredesignedbytheauthors.
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TECHNICALDOC1Numeracyliteraturereview[4].docx
DateLastEdited:1November,2017 CheckedBy:AH DateChecked:24/2/2017
Appendix2:QuestionsusedtomeasurenumeracyandfinancialliteracyinAllianz(2017)
LusardiandMitchellquestionstotestfinancialliteracy• CompoundinterestSupposeyouhad£100inasavingsaccountandtheinterestratewas2%peryear.Afterfiveyears,howmuchdoyouthinkyouwouldhaveintheaccountifyouleftthemoneytogrow?Morethan£102Exactly£102Lessthan£102Don‘tknowRefusetoanswer• InflationImaginethattheinterestrateonyoursavingsaccountwas1%peryearandinflationwas2%peryear.Afteroneyear,howmuchwouldyoubeabletobuywiththemoneyinthisaccount?MorethantodayExactlythesameLessthantodayDon‘tknowRefusetoanswer• DiversificationDoyouthinkthefollowingstatementistrueorfalse?“Buyingasinglecompanystockusuallyprovidesasaferreturnthanastockmutualfund.”TrueFalseDon’tknowRefusetoanswer LusardiandTufanoquestionstotestriskliteracy• Ifthechanceofgettingadiseaseis10percent,howmanypeopleoutof1,000wouldbeexpectedtoget
thedisease?• • If5peopleallhavethewinningnumberinthelotteryandtheprizeis2milliondollars,howmuchwilleach
ofthemget?