the journey from childhood skills to adult financial …...the journey from childhood skills to...

ThejourneyfromchildhoodskillstoadultfinancialcapabilityTechnicalAppendixNovember2017Authors:

MargueritaLane,ViktoriyaPeycheva,WouterLandzaatandDrGavanConlon(LondonEconomics)

www.moneyadviceservice.org.uk

Thejourneyfromchildhoodskillstoadultfinancialcapability:TechnicalAppendix

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AcknowledgementWearegratefultotheCentreforLongitudinalStudies(CLS),InstituteofEducationfortheuseofthesedataandtotheUKDataServiceformakingthemavailable.However,neitherCLSnortheUKDataServicebearanyresponsibilityfortheanalysisorinterpretationofthesedata.

ContentsAcknowledgement 1

Contents 1

Introduction 2

Chapter1Literaturereview 3

1.1Impactoffinancialsocialisation 31.2Impactofenvironment 31.3Impactofcognitiveandnon-cognitiveskills 41.4Impactofotherfactors 51.5Conclusions 61.6Referencesfortheliteraturereviewed 6

Chapter2Definitionofchildhoodskillsandadultfinancialoutcomes 8

2.1Childhoodskills 82.2Adultfinancialoutcomes 11

Chapter3Testingtherelationshipbetweenchildhoodskillsandadultfinancialoutcomes 14

3.1Therelationshipbetweenskillsandadultfinancialoutcomes 143.2Therelationshipbetweenindividualskillcomponentsandadultfinancialoutcomes 173.3Selectionofcontrolvariables 20

Chapter4Exploringthepathwaysfromchildhoodskillstoadultfinancialoutcomes 23

4.1Therelationshipbetweenskillsandintermediateoutcomes 244.2Theroleofintermediateoutcomesinchannellingthelinkbetweenchildhoodskillsandadultfinancialoutcomes 274.3Protectivepathwayseffectiveforlow-skilledindividuals 31

Chapter5Testingtheimpactofpersonalandfamilybackgroundcharacteristics 34

5.1Demographicsubgroupsathigherriskofhavingadversefinancialoutcomes 345.2Subgroupsaffecteddisproportionatelybyhavingdifferentlevelsofskills 35

Chapter6Testingtherelationshipbetweenadultfinancialoutcomesandotheradultoutcomes 39

6.1Whichfinancialoutcomesarelinkedtootheradultoutcomes? 406.2Dofinancialoutcomesdriveadultoutcomesorviceversa? 41

Annex1DetailsonBCS70variablesusedintheanalysis 44


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IntroductionThisTechnicalAppendixaccompaniesthemainreportThe journey fromchildhoodskills toadult financialcapability (2017)preparedfortheMoneyAdviceServicebyLondonEconomics.Theanalysishasusedthe1970BritishCohortStudy(BCS70)datasettotestthelinksbetweenskills(cognitive,non-cognitive,andbehaviour),inchildhoodandadolescence,andlongtermfinancialoutcomesinadulthood.Insodoing,thisresearchuncoversimportantnewunderstandingsaboutthepredictorsofadult financialwellbeing,possible indicatorsof riskandvulnerability,and important linksbetween financialoutcomesandwidersocialpolicypriorities.

This document supplements themain report by providing additional detail on themethodology and results. It is furthersupplementedbyaworkbookcontainingthefullsetofwiderresultsobtainedoverthecourseoftheresearch1.

Thestudyconsistedofanumberofstrandsofanalysis,eachrepresentedinFigure1below.Thisdiagramprovidesaframeworkfortheanalysisandhowitrepresentsthemanyconnectionsbetweendifferentaspectsofaperson’slife,fromchildhoodandadolescence,toadulthood.

Figure1:Overviewofanalysis

Thestructureofthedocumentisasfollows:

n Chapter1presentstheliteraturereviewthatguidedtheanalysis.

n Chapter 2provides adetaileddescriptionof the selection andmeasurementof the childhood skills and adultfinancialoutcomevariablesusedintheanalysis.

n Chapters3expandsontheinformationprovidedinChapter2ofthemainreporttoprovideadeeperexaminationoftherelationshipsbetweencompositeandindividualchildhoodskillsandadultfinancialoutcomes.

n Chapter4providesadditionaldetailon the relationshipsbetweenchildhoodskillsand intermediateoutcomesdiscussedinChapter3ofthemainreport.

n Chapter 5 of this document presents the results relating to the impact of personal and family backgroundcharacteristicsdiscussedinChapter4ofthemainreport.

n Chapter6presents further informationon the relationshipbetweenadult financialoutcomesandother adultoutcomes,beyondwhatappearsinChapter5ofthemainreport.

________________________________________________________________________________1PleasecontacttheMoneyAdviceServiceInsightandEvaluationteamifyouwouldliketoseethesemoredetailedresults.Contactdetailscanbefoundatthebackofthisreport.

Childhood - Ages 5, 10, 16

Adulthood - Ages 34, 42

Adult intermediate outcomes

Child cognitive, non-cognitive and behavioural skills

Adult other outcomes

Adult financial outcomes


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LiteraturereviewThisstudyconsiderswhethertherootsofadultfinancialcapabilitycanbefoundinchildhood.Wehavereviewedtheexistingliteratureonthechildhoodrootsofadultfinancialcapabilityforthemainpurposeofguidingtheselectionofvariablesfortheanalysisdescribedinthisreport.RelevantpaperswereidentifiedusinganonlineliteraturesearchandbytheMoneyAdviceService.

Literatureontheeffectofchildhoodskillsonadult financialcapability is scarce.Apossible reason for this is that financialliteracy,knowledgeandbehaviour tends tobe the focusof theeconomic literature,whereasperhaps themost importantchildhoodinfluence,financialsocialisation,tendstobethefocusofthepsychologyliterature(Grohmannetal.,2015).Thesetwostrandsof literature rarely interact in the setofpapers reviewed.Thereappears tobeagreatervolumeof literaturefocused on linking childhood skills to other adult outcomes, particularly labour market outcomes such as wages andemployment.

1.1 ImpactoffinancialsocialisationAcross the reviewed literature, themost important childhood predictor of adult financial capability seems to be financialsocialisation.Financialsocialisationcanbedefinedas“theprocessinwhichindividualsacquireanddevelopknowledge,beliefs,andnormsthatinfluencetheirsubsequentfinancialpractices”(Choetal.,2012).Socialisationvariesdependingonwhereandfromwhomtheindividualreceivesinformation.Typically,adistinctionismadebetweenparentalsocialisationandsocialisationatschooloratwork.

Theliteraturegenerallyshowseitherapositiveeffectofparentalsocialisationonadultfinancialoutcomesornoeffectatall.Bucciol&Veronesi(2014),lookingatadultsavingbehaviour,showapositiveeffectofparentalsocialisationintermsofteachingaboutappropriatesaving.Parents’teachingisbothdirect,throughprovidingbudgetingadvice,andindirect,throughprovidingpocketmoneyandallowingthechildfreedomintheirspendingdecisions.AsimilarpositiveeffectofparentalsocialisationisfoundbyShimetal. (2013) lookingatmoregeneralfinancialcapabilitymeasuressuchasfinancialknowledgeandattitudetowardsfinancialmatters.Grohmannetal.(2015)findapositivedirecteffectofparentalsocialisationonfinancialliteracyanda positive indirect effect on financial behaviour but find no direct effect of parental socialisation on financial behaviour2.Similarly,noeffectisobservedbyChoetal.(2012),alsousingamoregeneraldefinitionoffinancialcapability.

Financialsocialisationatschoolshowstobeapositiveforceforadultfinancialcapabilitytoo,withbothGrohmannetal.(2015)andChoetal.(2012)showingapositiveeffect.Incontrast,financialsocialisationthroughworkexperiencehasseeminglynoimpacton financial capability according to the reviewed literature.Grohmannet al. (2015) findsnoeffectof socialisationthroughwork experience on financial behaviour. Lenton (2014), looking at wages, similarly finds no effect. Interestingly,Grohmannetal.(2015)findanegativeeffectofwork-relatedfinancialsocialisationonfinancialliteracy.

1.2 ImpactofenvironmentParentsmayalsohaveanotherroletoplaybeyondfinancialsocialisation,mostimportantlyprovidingtheenvironmentinwhichthechildgrowsup.Inthereviewedliterature,thischildhoodenvironmentis invariablyproxiedbyparentalsocio-economicstatusorsocialclass,anditseemstoplaynosignificantroleinadultfinancialcapability.Dalyetal.(2015)findnosignificantimpactofparental social statusonunemploymentwhileGrohmannetal. (2015)andHerdetal. (2012) findnosignificantimpactofparentalsocialstatusonknowledgeofone’sownfinancialsituation.

There is some suggestion in the literature that genetics canalsoplaya role in the financial skill developmentof children.Cronqvist&Siegel(2013)performatwinstudytodisentangletheeffectofgeneticsonsavingsbehaviour.Byexploitingthefactthat identical twinsaregenetically identicalandfraternaltwinsarenot, theyareabletoestimatethataround33%ofvariationinsavingspropensityisduetogenetics.

________________________________________________________________________________2ThedirecteffectsinGrohmannetal.(2015)areeffectsthatimpacteitherfinancialliteracyorfinancialbehaviourdirectly.Indirecteffects are effects that are mediated through a third variable. For instance, the effect of parential socialisation on financialbehaviourismediatedthroughfinancialliteracy.Thatis,parentalsocialisationimprovesliteracywhichinturnsimprovesfinancialbehaviour.Combiningthesetwoeffects,theauthorsshowthatthereforeparentalsocialisationhasapositiveeffectonfinancialbehaviour.


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1.3 Impactofcognitiveandnon-cognitiveskillsOther childhood characteristics potentially influencing adult financial capability are cognitive and non-cognitive skills. Theliteratureontheinteractionbetweenadultfinancialcapabilityandchildhoodskills isnotwelldeveloped.Literatureontheinteractionbetweenchildhoodskillsandlabourmarketoutcomessuchaswagesandunemploymentismuchmoreabundant.Inthislight,thissectionmainlylooksattheimpactofchildhoodcognitiveandnon-cognitiveskillswithrespecttosuchlabourmarketoutcomes,withtheunderstandingthatthisisnotequaltofinancialcapabilitybutshouldberelated.

1.3.1CognitiveskillsCognitiveskillscanbedefinedas“theabilityofanindividualtoperformthevariousmentalactivitiesmostcloselyassociatedwithlearningandproblemsolving”(NCME,2015).Thesetendtobemeasuredbygeneralintelligence,literacy(reading)andnumeracy.

There is some evidence in the literature reviewed suggesting a relationship between childhood skills and adult financialcapability.Grohmannet al. (2015)3 find apositive effect of numeracyon financial literacy in adulthood4butnoeffect onfinancialbehaviour(asrepresentedbythenumberofdifferentfinancialassettypesheldbytheowner).Meanwhile,Herdetal. (2012), using theWisconsin Longitudinal Study, find somepositive effects of general intelligence –measuredwith theHenmon-Nelson Test ofMental Ability – on financial capability,measured by knowledge of one’s own financial situation.However,theyalsofindnostatisticallysignificanteffectofnumeracyandliteracyonthesamemeasure.

Mostofthestudiesreviewedlookingatadult labourmarketoutcomes (suchaswagesandemployment)findastatisticallysignificant, positive link between cognitive skills (measured sometimes as a composite, numeracyor literacy scores, or asgeneralintelligence)andtheoutcomes.Nonefindsastatisticallysignificant,negativelink.

Goodmanetal. (2015) findthatcognitiveskillsasassessedbyacombinationofnumeracyskills, literacyskillsandgeneralintelligence,haveapositiveimpactonwage,familyincome,netwealth–totalsavingsminustotaldebt–andwhethersomeoneisemployedlaterinlife.Dalyetal.(2015)findanegativeeffectofchildhoodgeneralintelligenceonadultunemployment(i.e.those with higher intelligence are more likely to be employed). Macmillan (2013) finds that early literacy and generalintelligenceatage5negativelyimpactthechanceofbeingunemployed(i.e.morelikelytobeemployed),butfindnosuchrelationshipforgeneralintelligenceatage10.

Crawford&Cribb(2015)showthathigherliteracy,asmeasuredbytheEdinburghReadingTest,isassociatedwithhigherwages5laterinlife.Lenton(2014)findsapositiveeffectoftestscores6onadultwages.Feinstein(2000)findschildhoodnumeracytopositivelyimpactadultemploymentandwages,andliteracyalsotopositivelyimpactwages.Blandenetal.(2006)findasimilarimpactonwagesfornumeracyandgeneralintelligence.Furnham&Cheng(2017),usingtheNationalChildDevelopmentStudy,findthatcognitiveability(assessedwithageneralabilitytestandmeasuredatage11)positivelyimpactsnetmonthlyearningsatage54.

1.3.2Non-cognitiveskillsIntheliteraturereviewed,thereissomeevidenceoftheimpactofchildhoodnon-cognitiveskillsonadultsavingbehaviour.PrevooandTerWeel(2013)useBCS70datatoexaminechildhoodpredictorsofwhetheranadultsavessomeamountofmoneypermonth,whichisslightlydifferenttotheregularsavingoutcomeincludedinthisstudy.Theyfindthatemotionalstabilityandconscientiousnessimpactone’ssavingprobabilitypositively,whereasextraversiondoessonegatively.Agreeablenessisnot found tobeastatistically significantpredictor forwagesnorsavings,andemotional stabilityandextraversionarenotstatisticallysignificantpredictorsforwages.

Asbefore,thereisagreatervolumeofliteraturefocusedonlinkingchildhoodnon-cognitiveskillstoadultoutcomessuchaswagesandemployment–manyofthemalsoemployingBCS70data.Goodmanetal.(2015),inareportonbehalfoftheEarlyIntervention Foundation, use BCS70 data to examine the links between non-cognitive skills and a broad range of adultoutcomes,includinglabourmarketoutcomes(suchaswages)andotheroutcomes(suchasmentalhealthandlifesatisfaction).Theyfindthatincomeispositivelyaffectedbyone’sself-perceptionandawareness,self-controlandregulationandsocialskills.

________________________________________________________________________________3Usingasurveyspecificallycollectedforthisstudy.Measuresrelatedtoparticipants’childhoodswerebasedontheirmemories.4Basedonanswerstoquestionsoninterestrates,inflationanddiversification,andaquestionaskingrespondentstonameforeignbanksoperatinginthecountry.5Othercognitiveskillshavebeenincludedinthispaper,buttheirresultsarenotreported.6Thisisnotfurtherdefinedinthepaper.


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Furthermore,theyalsofindthatself-controlandself-regulationpositively impacttheprobabilityofbeingemployed.Thesefindingsarecorroboratedbyanextensiveliteraturereviewundertakeninthesamereport,whichadditionallyfindsapositiveimpactofself-perceptionandawarenessonemployment.

Dalyetal.(2015)findthatanincreaseofself-controlisassociatedwithlowerunemployment.Macmillan(2013),focusingonboys only, finds that childhood internal locus of control, conscientiousness, extraversion and hyperactivity are importantinfluencesontheprobabilityofbeingunemployed,thelastbeingpositiveandtherestnegative.Agreeablenessandself-esteemdonothavesignificantimpactonunemployment.Blandenetal.(2006),focusingonwages,findthatinternallocusofcontrol,extraversionandhavinghighanxietyhaveanimpact,thelastbeingnegative.Self-esteemandneuroticismarenotstatisticallysignificant.

Furnham&Cheng(2017),usingtheNationalChildDevelopmentStudy,findthatconscientiousnessandopenness(measuredatage11)positivelyimpactnetmonthlyearningsatage54.

Twostudiesexaminewhetherthespecificnon-cognitivepersonalitytraitsdrivingadultlabourmarketoutcomesdifferbetweenboysandgirls,andfoundevidenceofthis.Intermsofmen’swages,Lenton(2014)findsthatchildhoodextraversionisapositivepredictorandaffiliationisanegativepredictor,butneitherofthesetraitshavealinkwithwomen’swages.Ontheotherhand,childhoodconscientiousnessisapostivepredictorandagreeablenessisanegativepredictorofwomen’swages,butneitherofthesetraitshavealinkwithmen’swages.Feinstein(2000)findsthatchildhoodanti-socialtendencies,extraversionandself-esteemaremoreimportantpredictorsofmen’semploymentthanwomen’swhilechildhoodlocusofcontrolismoreimportantforwomen.Childhoodself-esteemandlocusofcontrolarebiggerpredictorsofwomen’swagesthanmen’s.

1.4 ImpactofotherfactorsBesides childhood factors, other variablesmay have an impact on financial capability too. The variables which aremostcommonlyusedarediscussedhere.Theresultsofcoursedependonthedefinitionoffinancialcapabilityused,whichvariesthroughouttheliterature,andwhetherthisreferstofinancialbehaviourorfinancialliteracyorabroaderdefinitionoffinancialcapability.

Genderiscommonlycontrolledforinthereviewedliterature.Bucciol&Veronesi(2014)andCronqvist&Siegel(2013)findnosignificantdifferencesbetweenmenandwomeninfinancialcapabilityandneitherdoGrohmannetal. (2015)forfinancialliteracy.Theseauthors,however,dofindthatwomendisplaybetterfinancialbehaviour.Similarly,Dalyetal.(2015)findthatwomenhavealowerchanceofunemployment.Incontrast,Herdetal.(2012)findthatmendisplaybetterfinancialcapability.Choetal.(2012)findmixedresultsandCrawford&Cribb(2015),lookingatwages,andShimetal.(2013)controlforgenderintheiranalysisbutdonotreporttheeffect.Overall,theresultsforgenderaremixedbuttoalargeextentitseemsthatgendermakeslittledifferencetofinancialcapability.

Ageisanothercommonlycontrolledforfactor.Theresultsaremixedheretoo.Bucciol&Veronesi(2014)findnoimpactofageonsavingbehaviourandGrohmannetal.(2015)findnoeffectoneitherfinancialliteracynorfinancialbehaviour,proxiedbydifferenttypeoffinancialassetsowned.Cronqvist&Siegel(2013)ontheotherhandfindapositiveeffectonsavings.Onceagain,Choetal.(2012)findmixedresults.

Familyincomeseemstohaveanoverallpositiveeffectonlateradultfinancialcapability.Cronqvist&Siegel(2013)findthatgrowthofdisposableincomepositivelyaffectssavingsbehaviour.They,however,findmixedresultsforthelevelofdisposableincome. Bucciol & Veronesi (2014) and Grohmann et al. (2015) find a positive effect of the level of income on financialcapability.Choetal.(2012)similarlyfindpositiveeffectsforsomefinancialcapabilitymeasures,butfindnosignificantresultsforothers.

Educationalattainmentshowslittleimportanceforfinancialcapability.Themajorityoftheliteraturefindsnosignificantimpactofeducationonfinancialcapability(Choetal.,2012;Grohmann,etal.,2015;Herdetal.,2012;Bucciol&Veronesi,2014forwhethersomeonesaves).Bucciol&Veronesi(2014)findthateducationpositivelyimpactstheamountthatsomeonesaves.Lastly,Lenton(2014)findsthateducationhasapositiveimpactonwages.

Alastsetofvariablesthatisoftencontrolledforrelatestohouseholdstructureoftheindividualasanadult,particularlywhensavingsbehaviourisanalysed.Onesuchstatisticisthenumberofchildrensomeonehas.Intheliteraturereviewed,thisstatisticturnsouttonotbeagoodpredictoroffinancialbehaviourandoutcomes.Cronqvist&Siegel(2013)andBucciol&Veronesi(2014)findnosignificantimpactofhavingchildrenonsavingbehaviour.Lookingatwages,Lenton(2014)findanegativeimpactbutonlyformen.

Otherhouseholdstatisticsarealsoused.Choetal.(2012),lookingatgeneralfinancialcapability,findapositiveeffectofthenumberoffamilymembers,whereasBucciol&Veronesi(2014),lookingatsavings,findanegativeeffect.Cronqvist&Siegel


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(2013)findanegativerelationshipbetweensavingsandthenumberofsiblingsonehas,butnosuchrelationshipexistswithrespecttothenumberofparentsstillalive.

1.5 ConclusionsFrom this review, tentative conclusionsmay be drawn. Firstly, it seems that financial socialisation is themost importantcontributortoadultfinancialcapability,althoughthisagaindependsonthedefinitionsoffinancialcapabilityused,whichvariesthroughoutthe literature.Aparticularly largerole isreservedforparentalsocialisation,butsocialisationatschool isalsoapositive influence. Financial socialisation through work, on the other hand, does not seem to be important. Beyondsocialisation,therearesomesuggestionsthatchildhoodenvironmentdoesnotseemtobeanimportantpredictoroffinancialcapability.

There is some evidence in the literature reviewed suggesting a relationship between cognitive and non-cognitive skills inchildhoodandadultfinancialcapability.However,thereisagreatervolumeofliteraturefocusedonlinkingchildhoodskillstootheradultoutcomes,particularlylabourmarketoutcomessuchaswagesandemployment.

Anumberofthesestudiesfindastatisticallysignificant,positivelinkbetweencognitiveskillsandadultfinancialcapabilityandlabourmarketoutcomes.Certainchildhoodnon-cognitiveskillsalsoappeartobepositivelylinkedtoadultfinancialcapabilityandlabourmarketoutcomes,suchasconscientiousness,self-perceptionandawareness.Thereissomeevidencethatdifferentspecificnon-cognitivepersonalitytraitsdrivepositiveadultlabourmarketoutcomesformenandwomen.

1.6 ReferencesfortheliteraturereviewedBlanden,J.,Gregg,P.,&Macmillan,L.(2006).AccountingforIntergenerationalIncomePersistence:Non-CognitiveSkills,

AbilityandEducation.CentrefortheEconomicsofEducationWorkingPaper.

Bucciol,A.,&Veronesi,M.(2014).Teachingchildrentosave:Whatisthebeststrategyforlifetimesavings?JournalofEconomicPsychology,45,1-17.

Cho,S.,Gutter,M.,Kim,J.,&Mauldin,T.(2012).TheEffectofSocialisationandInformationSourceonFinancialManagementBehaviorsamongLow-andModerate-IncomeAdults.Family&ConsumerSciencesResearchJournal,40(4),417-430.

Crawford,C.,&Cribb,J.(2015).Thelinkbetweenchildhoodreadingskillsandadultoutcomes:analysisofacohortofBritishchildren.InstituteforFiscalStudiesBriefingNoteBN169.

Cronqvist,H.,&Siegel,S.(2013).TheOriginsofSavingsBehavior.Retrievedfromhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=1649790

Daly,M.,Delaney,L.,Egan,M.,&Baumeister,R.F.(2015).ChildhoodSelf-ControlandUnemploymentThroughouttheLifeSpan:EvidenceFromTwoBritishCohortStudies.PsychologicalScience,26(6),709-723.

Feinstein,L.(2000).TheRelativeEconomicImportanceofAcademic,PsychologicalandBehaviouralAttributesDevelopedinChildhood.CentreforEconomicPerformanceDiscussionPaper443.

Furnham&Cheng(2017).ChildhoodCognitiveAbilityPredictsAdultFinancialWell-Being.JournalofIntelligence,5(3).doi:10.3390/jintelligence5010003

Goodman,A.,Joshi,H.,Nasim,B.,&Tyler,C.(2015,March11).Socialandemotionalskillsinchildhoodandtheirlong-termeffectsonadultlife.AreviewfortheEarlyInterventionFoundation.Retrievedfromhttp://www.eif.org.uk/wp-content/uploads/2015/03/EIF-Strand-1-Report-FINAL1.pdf

Grohmann,A.,Kouwenberg,R.,&Menkhoff,L.(2015).Childhoodrootsoffinancialliteracy.JournalofEconomicPsychology,51,114-133.

Herd,P.,Holden,K.,&Su,Y.(2012).TheLinksbetweenEarly-LifeCognitionandSchoolingandLate-LifeFinancialKnowledge.TheJournalofConsumerAffairs,411-435.

Lenton,P.(2014).PersonalityCharacteristics,EducationalAttainmentandWages:AnEconomicAnalysisUsingtheBritishCohortStudy.SheffieldEconomicResearchPaperSeries.Retrievedfromhttp://www.sheffield.ac.uk/economics/research/serps/articles/2014_011

Macmillan,L.(2013).Theroleofnon-cognitiveandcognitiveskills,behaviouralandeducationaloutcomesinaccountingfortheintergenerationaltransmissionofworklessness.DoQSSWorkingPaperNo.13-01.


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NationalCouncilonMeasurementinEducation(NCME).(2015).GlossaryofImportantAssessmentandMeasurement.Retrieved0916,2016,fromhttp://www.ncme.org/ncme/NCME/Resource_Center/Glossary/NCME/Resource_Center/Glossary1.aspx

Prevoo,T.,&TerWeel,B.(2013).TheImportanceofEarlyConscientiousnessforSocio-EconomicOutcomes:EvidencefromtheBritishCohortStudy.IZADiscussionPaperNo.7537.

Shim,S.,Serido,J.,Bosch,L.,&Tang,C.(2013).FinancialIdentity-ProcessingStylesAmongYoungAdults:ALongitudinalStudyofSocialisationFactorsandConsequencesforFinancialCapability.TheJournalofConsumerAffairs,128-152


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DefinitionofchildhoodskillsandadultfinancialoutcomesThissectionprovidesmoredetailontheconstructionofthemeasuresusedintheanalysis,beyondwhatappearsinthemainreport.Section2.1ofthisTechnicalAppendixdescribeshowchildhoodskillswereconstructedwhileSection2.2focusesonadultfinancialoutcomes.FurtherdetailsonwhichunderlyingBCS70variableswereusedtoconstructthechildhoodskillsandadultfinancialoutcomevariablesareprovidedinAnnex1ofthisdocument.

2.1 ChildhoodskillsAsdescribedinthemainreport,therewasadistinctionmadeintheanalysisbetweencognitive,non-cognitiveandbehaviouralskills. For each of these types of skill, the analysis considered both compositemeasures and individual skill components.Compositemeasurewereusedtoinvestigatetherelationshipsbetweenoverallskillsandadultfinancialoutcomes,whereasskillcomponentswereusedtoinvestigatewhetheranyspecificunderlyingskillscomponentsweredrivingtheserelationships.

Themain report provides an overview of how childhood skillmeasureswere defined for the analysis and lists all of thecompositeandindividualskillmeasuresusedintheanalysis.ThissectionoftheTechnicalAppendixprovidesmoredetailonthe construction of the childhood skillsmeasures, particularly on the associations between the compositemeasures andindividualskillcomponents.

2.1.1Cognitiveskills

Measuresatage5(1975wave)Compositemeasureofcognitiveskillsatage5

Thecompositemeasureofcognitiveskillsatage5 isgeneratedusingPrincipalComponentAnalysis (PCA)7on thecopyingdesignstest,thehumanfiguredrawingtest,theprofiledrawingtestandthemother’sassessmentofwhetherthechildcanread,eachofwhichhavealsobeenusedasindividualmeasures.Thecompositemeasureassignsahigherweighttothecopydesignstestandthehumanfiguredrawingtestthantheothermeasures.

PCA is a statistical technique that produces a number of combinations of variables, called components, which representvariationintheunderlyingdata.Itisusedinthisstudywiththepurposeofcombiningskillstocreateanindexwhichrepresentsoverallcognitiveornon-cognitiveskills.ThisindexisderivedfromthefirstcomponentofaPCA,whichisthecomponentwhichexplainsthelargestamountofvariationinthedata.Inthiscase,wherethePCAisrunonasetofcognitiveskillvariableswhicharelikelytobepositivelycorrelatedwithoneanother,wewouldexpectthefirstcomponenttorepresentoverallcognitiveability.


ThisisaPCA-generatedcompositescoreofFriendlyMathstestscore,theEdinburghReadingTestscoreandtheBritishAbilityScalesscore(testinggeneralintelligence),eachofwhichhasalsobeenusedasaseparatemeasuresofcognitiveskillatage10.ThecompositeindexconstructedusingPCAendsupbeingessentiallyanaverageofthethreeunderlyingtestscores.


Thecompositemeasureofcognitiveabilityatage16hasbeenderivedfromO-levelresultsreportedintheage26waveoftheBCS70.AllcohortmembersaregroupedintooneofthreecategoriesbasedontheNationalQualificationFramework(NQF)asfollows:

n Level0:NoO-level,CSE,GCSE,ScottishStandardGradeorScottishOrdinaryGradewithgradeAtoGorequivalentachieved.

________________________________________________________________________________7Usingpolychoricvariancesforordinalvariableslikemother’sassessmentofthechild’sreadingabilityandthecopyingdesignstest.


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n Level1:1to4O-levels,CSEs,GCSEs,ScottishStandardGradeorScottishOrdinaryGradewithgradeAtoCorequivalentachieved,andanynumberO-levels,CSEs,GCSEs,ScottishStandardGradeorScottishOrdinaryGradewithgradeDtoGachieved,oranycombinationofthese.

n Level2:5ormoreO-levels,CSEs,GCSEs,ScottishStandardGradeorScottishOrdinaryGradewithgradeAtoCorequivalentachieved.

Thedecisionwasmadetouseadifferentapproachtotheapproachusedatotherages,asthemeasuresofcognitiveabilityatage16haveahigherproportionofmissingobservations,whichwouldresultinverysmallsamplesizesfortheanalysis.Thisisinpartduetothefactthatindividualcognitiveskillsarederivedfromtheteacherself-completionmodule,whichinthe1986wavehadarelativelylowresponserateduetoateacherstriketakingplaceatthetimeofthesurvey8.

2.1.2Non-cognitiveskills

Measuresatage5(1975wave)Measuresofnon-cognitiveskillsatage5arenotavailableintheBCS70.

Measuresatage10(1980wave)Academicself-concept

Academicself-conceptisanon-cognitiveskillcomponentderivedfromself-assessedabilityinparticularsubjects,withahigherscore indicatingabetter self-concept.Thesurveyquestionused is: “Doyoudowellornot sowell in the followingschoolsubject?”withresponsesbeingeither“well”or“notsowell”.Thequestionisansweredforeachofthefollowingsubjects9:

n Mathematics

n Reading

n Spelling

n Creativewriting

n Artandcraft

n Topicorprojectwork

Locusofcontrol

Ahigherscoreindicatesgreaterinternallocusofcontrol,meaningthebeliefthatanindividualcontrolstheirownlife(ratherthaneventsoccurringduetoexternalfactorsoutsideoftheircontrol).Sixteenquestionsareusedtoconstructthiscompositemeasure,suchas:

n Doyoufeelthatmostofthetimeit’snotworthtryinghardbecausethingsneverturnoutrightanyway?

n Aretestsjustalotofguessworkforyouanyway?

n Whennicethingshappentoyouisitonlygoodluck?

Self-esteem

Ahigherscoreindicateshigherself-esteem.Theunderlyingquestionsusedinthescoringinclude:

n Doyouthinkthatyourparentsusuallyliketohearaboutyourideas?

n Doyouoftenfeellonelyatschool?

n Dootherpeopleoftenthinkthatyoutelllies?

________________________________________________________________________________8CentreforLongitudinalStudies.‘BCS70-The1970BritishCohortStudy:TheSixteen-yearFollow-up’.Availableat:http://www.cls.ioe.ac.uk/shared/get-file.ashx?id=784&itemtype=document9FollowingtheapproachofGoodmanetal(2015).


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Self-control

Self-controlmeasure the ability to control one’s inhibitions. A higher score indicates a higher degree of self-control. Thequestionsusedinclude10,forinstance:

n Childisdaydreaming

n Cannotconcentrateonparticulartask

n Paysattentioninclass

Socialskills

Thesocialskillsvariableisderivedfromtheteacher-completedquestionnairewithquestionsabout11:

n Child’spopularitywithpeers

n Numberoffriendschildhas

n Boldnessofthechild

n Cooperativenessofthechild

Compositemeasureofnon-cognitiveskillsatage10

Thecompositemeasureofnon-cognitiveskillsatage10isgeneratedusingPrincipalComponentAnalysis.Thiscompositewasconstructedusingtheindividualnon-cognitiveskillscomponentsatage10,namelyacademicself-concept,locusofcontrol,self-control,self-esteemandsocialskills.ThecompositeindexconstructedusingPCAendsupbeingessentiallyanaverageofthefiveunderlyingtestscores.

Measuresatage16(1986wave)Locusofcontrol

19questionsareused,similartothoseusedintheconstructionoftheage10measure.

Challenge

Thechallengevariable isderived fromthecohortmember’sanswers toquestions relatedto jobsand jobenvironment. Inparticular,challengeisderivedfromthreevariablesaskingwhetheritmatterstohaveaninterestingjob,whethergettingapromotionmattersandwhetherhavingajobwithrealchallengematters.

Self-esteem

Ahigherscoreindicatingahigherself-esteem.Itisbasedonthesamelistofvariablesastheage10variable.

Socialskill

Thesocialskillsvariableisconstructedinthesamewayasthemeasureatage10.

Compositemeasureofnon-cognitiveskillsatage16

ThisisaPCA-generatedcompositescoreofthechallengemeasure,thelocusofcontrolmeasure,theself-esteemmeasureandthesocialskillsmeasurealldefinedabove.Theindexgivesslightlyhigherweighttochallengeandlocusofcontrol,andlesstosocialskills.

2.1.3Behaviouralskills

CompositemeasureThecompositemeasureusedforbehaviouralskillsistheRutterBehaviouralScore,whichgivesanindicationofbehaviouralproblemsinchildren,withahigherscoreindicatingworsebehaviour.Itisderivedfromanumberofquestionsinthematernalcompletionmodule.Examplesofunderlyingbehavioursinclude:

n Veryrestless,oftenrunningaboutorjumpingupanddown;

________________________________________________________________________________10FollowingDalyetal(2015).11FollowingtheapproachofGoodmanetal(2015).


11

n Frequentlyfightswithotherchildren;

n Oftenworried,worriesaboutmanythings;

n Bulliesotherchildren,etc.

Theunderlyingquestionsarethesameinthe1975,1980and1986waves.Foreaseofreporting,thescalehasbeenreversedsothatahigherscoreindicatesbetterbehaviour.

IndividualmeasuresTheindividualquestionsoftheRutterBehaviouralScorehavebeenusedtoconstructindividualbehaviouralskillcomponents.FollowingPrevoo&TerWeel(2013),thevariableshavebeenusedtoconstructameasurefor:

n Agreeableness,measuringthetendencyforachildtobecooperative,unselfish,etc.;

n Conscientiousness,measuringthetendencytobeorganised,responsible,hardworkingetc.;

n Extraversion,measuringthetendencytobeoutgoing,fondnessoflargegroupsetc.;and

n Neuroticism,measuringthetendencytobeemotionallyunstableandpronetopsychologicaldistress.

FollowingGoodmanetal.(2015),thevariableshavebeenusedtoconstructameasurefor:

n Goodconduct,measuringtheextentofachildtonotbeantisocialoruncooperative;and

n Emotionalhealth,measuringtheextenttowhichachildrarelyworried,miserable,fearful,fussy,sullenorsulky.

Theseindividualmeasureshavebeenconstructedatages10and16,followingthecombinationofquestionsandtheirweightssuggested in the literature reviewedaspartof thisanalysis.The literature,however,only suggestshowtoconstructnon-cognitiveskillmeasuresforage16.Non-cognitiveskillmeasuresatage10wereconstructedusingthesamecombinationofquestionsandweightsprovidedintheliteratureforage16,assumingthatnon-cognitiveskillsatage10canbemeasuredinthesamewayasnon-cognitiveskillsatage16.

Applyingthesameassumptiontoindividualsaged5–namelythatthecomponentsofchildhoodnon-cognitiveskillsatage5canbemeasured in thesamewayas thoseatage16 -wouldbedifficult to justify, sinceachildsignificantlychangesanddevelopsintermsofbehaviourbetweentheagesof5and16.Therefore,theliteraturedoesnotprovideareliablemodelofhowtoconstructindividualmeasuresofnon-cognitiveskillsatage5basedontheRutterquestionnaire.Forthismethodologicalreason,individualnon-cognitiveskillmeasureshavenotbeenconstructedatage5.

2.2 Adultfinancialoutcomes

Regularsaving(age34)Theregularsavingvariablecaptureswhetherapersonsavesregularly.Thisoutcomewasconstructedasabinaryvariablewhichhasavalueof1ifthesurveyparticipantclaimstosaveregularly,and0iftheyclaimtosaveonlyfromtimetotimeornottosaveatall.

Pensionsaving(age34)Thepensionsavingvariablecaptureswhetherapersonsavesforretirement.Thisoutcomewasconstructedasabinaryvariablewhichhasavalueof1ifthesurveyrespondentclaimstoeithersaveforretirement,ortocontributetoatleastonetypeofpensionscheme,orboth;andavalueof0ifthesurveyrespondentdoesnotsaveforretirementnorcontributestoapensionscheme.

Lowdebt-to-incomeratio(age42)Thelowdebt-to-incomeratiovariablecaptureswhetheraperson’shouseholddebtislessthan25%oftheannualhouseholdincome (value of 1), or above 25%of the annual household income (value of 0) and serves as a proxy for indebtedness.Householddebtexcludesmortgages,andhouseholdincomeincludesallsourcesofincomeincludingone’sownpay,payfromapartner,andbenefitsortaxcredits.

Thedefinitionofdebtbeing lessthanorequalto25%ofannualhousehold incomewasselectedfromarangeofdifferentoptions.Adescriptionoftheprocessofselectingthisdefinitionfollows.

Asproxiesforindebtedness,anumberofbinaryvariableswerecreatedbasedonthedebt-to-incomeratioatage42.Eachsuchvariablewasconstructedusinganarbitrarilychosencut-offpointofthedebt-to-incomeratioatage42.Thecut-offratiosthatweretestedwere:


12

n Debt-to-incomeratio>0(i.e.individualswithsomedebt)

n Debt-to-incomeratio>0.15(i.e.individualswithdebtgreaterthan15%ofannualincome)






n Debt-to-incomeratio>1(i.e.debtmorethanayear’sincome)

n Debt-to-incomeratio>2(i.e.debtmorethantwoyears’income)

Foreachvariable,individualswithadebt-to-incomeratiobelowtherespectivecut-offlevelwereclassifiedas“notindebted”,andindividualswithadebt-to-incomeratioequaltoorabovethecut-offwereclassifiedas“indebted”.

Inordertochoosethemostappropriateindicatorofindebtedness,weexploredtheextenttowhicheachoftheconstructedmeasureswerecorrelatedwiththefinancialself-assessmentvariable.Theresultsofthisanalysisarepresentedinthetablebelow. As expected, the correlation coefficients are negative. This result implies that the better someone’s financial self-assessment,thelesslikelytheyaretohaveahighdebt-to-incomeratio(andthereforetobeabovethetestedthresholds).

Table1:Correlationcoefficientsofdebt-to-incomebinaryvariablesandfinancialself-assessmentatage42

Debtvariable Correlationcoefficient

Debt-to-income>0 -0.1767

Debt-to-income>0.15 -0.2099








The25%definitionwasselectedforanumberofreasons:ithadoneofthestrongestcorrelationcoefficientswithfinancialself-assessmentamongsttheoptionstested;itisameaningfulvalue(equivalentto3months’income)anddatafromtheMoneyAdvice Service’s Financial Capability Survey (2015)12 suggests this is a useful threshold beyond which over-indebtednessbecomesmoreprevalent,asillustratedinTable2below.

Table2:Prevalenceofover-indebtednessaccordingtoalternativedebt-to-incomerations

Debt-to-incomeratio Over-indebted(%) NotOver-indebted(%)

Lessthan1month 51 74

>=1butlessthan3months 15 11

>=3butlessthan6months 12 06

6monthsormore 22 08

Total 100 100

________________________________________________________________________________12FinancialCapabilityintheUK2015(MoneyAdviceService,2015)


13

Netwealth(age42)Netwealthisdefinedashouseholdsavingsminushouseholddebt.Savingsincludeself-reportedamountsofhouseholdsavingsintermsofbankorbuildingsocietysavings,bondsandcertificates,ISAs,stocksandshares,investmenttrusts,bondsandgilts.Householddebtincludesself-reportedamountsofstudentloans,creditcard,storecard,hirepurchaseagreements,personalloans(e.g.bank,buildingsocietyorotherfinancialinstitution,aswellasloansfromaprivateindividual),butexcludesmortgagedebt.

Financialself-assessment(ages34and42)Forbothages34and42,thefinancialself-assessmentvariablehasbeenderivedfromaquestionrecordingtheself-assessmentofthecohortmember’sfinancialposition.Thequestionwasframedidenticallyinboththe2004andthe2012wave.

Thequestionaskedis:“Howwellwouldyousayyoupersonallyaremanagingfinanciallythesedays?”Thepossibleanswersare:

n “Findingitverydifficult”

n “Findingitquitedifficult”

n “Justaboutgettingby”

n “Doingallright”

n “Livingcomfortably”.


14

Testingtherelationshipbetweenchildhoodskillsandadultfinancialoutcomes3.1 Therelationshipbetweenskillsandadultfinancialoutcomes

Table3inSection2.1ofthemainreportshowsthatcognitiveskills,non-cognitiveskillsandbehaviouratages5,10and16areshowntobepredictorsofarangeofadultfinancialoutcomes.

Itshouldbenotedthattheanalyticalapproach,describedintheboxbelow,doesnotaimtobuildapredictivemodelofthelevelsofadultfinancialoutcomesthatachildmightachieve.Instead,thepurposeofthistypeofanalysis–andtheanalysisinfurthersections–istotesthypothesesaboutlinksbetweencertainchildhoodcharacteristicsandadultoutcomes.







Regressionanalysistoestimatetherelationshipsbetweenskillsandfinancialoutcomes

Therelationshipsbetweenchildhoodskillsandfinancialoutcomeswereinvestigatedthroughregressionanalysisusingatechniqueappropriatefortheoutcomeofinterest,i.e.OrdinaryLeastSquaresforcontinuousfinancialoutcomesandlogitregressionforbinaryfinancialoutcomes.Inbothcases,robuststandarderrorshavebeenusedwherenecessary.Thebasicformoftheequationis:

!"#$%'()*)+(*$,#%+,-. = 0 + 2345($$6*%+7($"7,,"*8. + 93:,)%;,$6*%+7($"7,,"*8.Thistypeofequationwasestimatedseparatelyforeachfinancialoutcomeandateachchildhoodage(5,10and16),usingthe compositemeasures of cognitive, non-cognitive and behavioural skillsmeasured at that age. A full set of controlvariablesmeasuredat childhoodwerealso included,whichwerealso included inall subsequentanalyses. The controlvariablesconsistedof:

nGender,ethnicity,gestationaltime,ageofparents

nNumberofpeopleinthehousehold,familyincome,homeownershipstatus,neighbourhoodsocialrating

nParents’highesteducationalattainment,employmentstatus,socialclass

nMother’sattitudetomaternalemployment,TVviewing,childindependenceandchildrearing

TheprocedureforselectionofthecontrolvariablesisdiscussedinSection3.3ofthisTechnicalAnnex.


15

Table3inthischapterprovidesfurtherinformationontheserelationships.Similarlytothepresentationinthemainreport,the results inTable3areorganisedbychildhoodageandtypeof skill. Foreachskillandateachchildhoodage, the tablepresentsthesizeoftheestimatedimprovements13offinancialoutcomesassociatedwithimprovementsoftherespectiveskillatthegivenage.Itshouldbenotedthattheresultspresentedinthistableanddiscussedinthemainreportusestandardised14skillsvariables.Suchtransformationallowsusto:

n compareachildwhoscoresinthetop15thpercentile(i.e.15%ofallchildrenscoreatthatlevelorabove)ofaparticularmeasuretoachildinthebottom15thpercentile(i.e.15%ofallchildrenscoreatthatlevelorbelow)ofthemeasure;and

n comparetherelationshipsbetweendifferentskillsandfinancialoutcomes,whichareotherwisemeasuredonanumberofdifferentscales(e.g.dependingonthescalesusedintheBCS70questionnaireandonhowmanyunderlyingquestionswereusedfortheirconstruction).

Asanexample,wefocusontheresultsforskillsatage16andpensionsavingatage34.Thetablesuggeststhatthelinkbetweenpensionsavingandcognitiveskills (representedby‘O’Levelqualificationattainmentatage16)andthatbetweenpensionsavingandbehaviourarestatisticallysignificantatthe95%confidencelevel.Therefore,ayoungpersonaged16whoachievesascoreinthetop15%intermsofcognitiveabilityorbehaviourisassociatedwithoddsofpensionsavingthatare117%and61%higherthanforayoungpersonscoringinthebottom15%ofthesemeasures,respectively.Non-cognitiveskillsatage16donotappeartobeasignificantpredictorofpensionsavinginadulthood.

________________________________________________________________________________13Forregularsaving(age34),pensionsaving(age34)andlowdebt-to-incomeratio(age42),theeffectsizesarepresentedintermsofoddsratios;anoddsratioabove1impliesapositivelinkbetweentheskillandthefinancialoutcome,whereasanoddsratiobelow0meansanegativelink.Fornetwealth(age42),theeffectsizeisintermsofadditional£.Forfinancialself-assessment(age34&age42),theeffectsizesareintermsofimprovementoftheodds;apositiveeffectsizeimpliesapositiverelationship,whereasanegativesignimpliesanegativerelationship.14Centredat0andrescaledbydividingbytwostandarddeviations.

Noteoninterpretingtheresults:Thetablepresentstheestimatedrelationshipsbetweenskillsandfinancialoutcomesintermsofthepercentagechangeintheoddsofhavingacertainfinancialoutcomeinadulthood(e.g.beingaregularsaver,savingforapension,etc.).Oddsandprobabilitiesaretwowaysofrepresentingthelikelihoodofanevent.Inparticular,thetwomeasuresarerelatedwiththeoddsofbeingaregularsaverequallingtheprobabilityofbeingasaverdividedbytheprobabilityofnotbeingasaver.

Theresultsontherelationshipsbetweenskillsandnetwealthareslightlydifferent–ratherthanshowingchangesintheodds,theyshowthemonetaryupliftinnetwealth(in£)associatedwithanimprovementinskills.

Thetableshowsthepointestimate(effectsize)andtheassociated95%confidenceinterval.The95%confidenceintervalrepresentstheamountofuncertaintyaroundthepointestimate.Iftheintervaldoesnotincludethevalue0,thenwecansaythattheresultisstatisticallysignificantlydifferentto0.Thestatisticalsignificanceisalsomarkedwith*iftheresultissignificantatthe95%confidenceinterval.


16

Table3:Statisticalresultsforthelinkbetweenchildhoodskillsandadultfinancialoutcomes

Skillmeasure

Regularsaving(age34)

Pensionsaving(age34)

Lowdebt-to-incomeratio(age42)

Netwealth(age42)

Financialself-assessment(age34)


Effectsize

Stat.sign. [95%C.I.] Effect

sizeStat.sign. [95%C.I.] Effect

sizeStat.sign. [95%C.I.] Effect

sizeStat.sign. [95%C.I.]

Effectsize


sizeStat.sign.

[95%C.I.]

Age5

Cognitiveabilitycomposite 1.134 * 1.011 1.272 1.241 *** 1.103 1.398 0.928 0.781 1.104 5350 * 403 10338 1.115 * 1.004 1.238 1.154 ** 1.039 1.281

Non-cognitiveabilitycomposite -------------Notcapturedatage5-------------

ReversedRutterbehaviouralscore 1.073 0.947 1.216 1.146 * 1.010 1.302 0.828 * 0.689 0.988 -3600 -8823 1624 1.113 0.994 1.246 1.054 0.941 1.180

Age10

Cognitiveabilitycomposite 1.438 *** 1.184 1.746 1.580 *** 1.298 1.924 1.160 0.876 1.536 5912 -3128 14952 1.284 ** 1.077 1.531 1.405 *** 1.180 1.672

Non-cognitiveabilitycomposite 1.746 * 1.007 1.438 1.262 * 1.298 1.924 0.934 0.719 1.212 12548 ** 4557 20540 1.607 *** 1.337 1.889 1.554 *** 1.322 1.827

ReversedRutterbehaviouralscore 1.153 0.970 1.372 1.301 ** 1.298 1.924 0.900 0.697 1.161 2109 -4123 8341 1.077 0.921 1.260 0.939 0.801 1.100

Age16

Cognitiveabilitycomposite 1.392 0.968 2.003 2.171 *** 1.467 3.215 1.258 0.700 2.261 8658 -4713 22028 1.094 0.781 1.531 0.963 0.694 1.338

Non-cognitiveabilitycomposite 1.357 0.993 1.852 0.825 0.584 1.167 0.872 0.540 1.409 -6248 -19385 6888 1.631 *** 1.219 2.183 1.536 ** 1.152 2.046

ReversedRutterbehaviouralscore 1.215 0.861 1.714 1.609 * 1.114 2.323 0.578 * 0.356 0.939 3937 -8685 16558 1.368 0.993 1.884 1.530 ** 1.115 2.099

Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”.Regularsaving(age34),pensionsaving(age34)andlowdebt-to-income(age42)presentoddsratiosfromlogit.Netwealth(age42)presentscoefficientsfromlinearregression.Financialself-assessment(ages34and42)presentsoddsratiosfromorderedlogit.


17

3.2 Therelationshipbetweenindividualskillcomponentsandadultfinancialoutcomes

Section2.2ofthemainreportpresentsthemainfindingsoftheanalysisexaminingwhichindividualskillcomponentsdrivethe

relationshipsbetweenchildhoodskillsandadultfinancialoutcomes:

n Bothnumeracyandliteracyappeartodrivethelinkbetweenthecognitiveskillmeasureatage10andadult

financialoutcomestoacomparableextent.

n Self-controlandlocusofcontrolatage10drivethelinksbetweennon-cognitiveskillsandmanyadultfinancial

outcomes.

n Atage16,extraversionandagreeablenessarepersonalitytraitsthatappeartodrivetherelationshipbetweenbehaviourandadultfinancialoutcomes.

Table4overleafpresentsfurtherdetailabouttherelationshipsbetweenindividualskillcomponentsandfinancialoutcomes.

Theresultsforindividualskillcomponentscanbeinterpretedinthesamewayastheresultsforthecompositemeasuresof

skillspresentedinSection3.1ofthisTechnicalAppendix.

The linksbetween individual skill componentsand financialoutcomeswereexaminedonlywherea statistically significant

relationshipwasestablishedbetweenatleastonecompositeskillatacertainageandthefinancialoutcome(asindicatedin

Table3ofSection3.1thisTechnicalAppendix).Wherenosuchrelationshipswereidentified,noresultshavebeenpresented

intherespectivecellinTable4.

TheresultswithinTable4relatingindividualskillcomponentsatage10toregularsavingatage34indicatesthattherearetwo

skillcomponentswhicharelinkedtoregularsaving:self-control15andlocusofcontrol16.Specifically,achildwithascoreinthetop15%intermsofself-controlor locusofcontrolatage10isassociatedwithoddsofregularsavingatage34whichare

approximately28%higherthanforachildwhoscoresinthebottom15%ofself-controlorlocusofcontrol.Thus,thesetwo

componentsofnon-cognitive skillsdrive the relationshippresented inTable3betweennon-cognitive skillsatage10andregularsaving.

Asnoted in themainreport, insomecases, the linkbetweenan individualskill componentanda financialoutcomehasa

negativesign,opposite to thesignon the relationship identifiedbetween thecomposite skill and financialoutcome.Such

‘counterintuitive’resultsarenotuncommoninanalysisofthistypewhenmanyskillcomponentsareincludedinonemodel.

Thenegativerelationshipbetweenaskillcomponentandafinancialoutcomeislikelytoreflectthefactthattheskillcomponent

isinterlinkedwithanotherskillcomponentinsuchawaythatitisdifficulttoisolateeachcomponent’sindividualeffect.

________________________________________________________________________________

15Theabilitytocontrolone’senvironment.16Thebeliefthatonecontrolstheirownliferatherthanthateventsoccurduetoexternalfactors.

Regressionanalysistoestimatetherelationshipsbetweenindividualskillcomponentsandfinancialoutcomes

The relationships between individual skill components and financial outcomes were investigated through regression

analysisusingatechniqueappropriatefortheoutcomeof interest, i.e.Ordinary LeastSquaresfor continuousfinancial

outcomesandlogitregressionforbinaryfinancialoutcomes.Thebasicformoftheequationis:

!"#$#%"$&()*%(+, = . + 012#3"4"3)$&56"&&%(+7(#,#*5$*%8"&38((3$9, + :1;(#*<(&5$*%8"&38((3$9,Thistypeofequationwasestimatedseparatelyforeachfinancialoutcomeandateachchildhoodage,usingtheindividual

cognitive,non-cognitiveandbehaviouralskillcomponentsofmeasuredatthatage.Theanalysiscontrolledforthesame

setofvariablesaslistedinChapter3ofthisTechnicalAppendix.


18

Table4:Coefficientsrepresentingthelinkbetweenindividualskillcomponentsandadultfinancialoutcomes

Skillmeasure




Netwealth(age42)



Effectsize

Stat.sign.[95%C.I.]

Effectsize

Stat.sign. [95%C.I.]

Effectsize


sizeStat.sign. [95%C.I.]

Effectsize

Stat.sign.[95%C.I.]

Effectsize

Stat.sign.

[95%C.I.]

Age5

Canreadletters 1.056 0.901 1.239 1.015 0.864 1.193 0.800 0.635 1.007 37 -7176 7250 1.130 0.978 1.305 1.053 0.911 1.217Canreadsomewords 1.131 0.982 1.303 1.146 0.992 1.324 1.003 0.811 1.239 2141 -4918 9200 1.145 * 1.008 1.302 1.034 0.910 1.174

Canreadsimplesentences 1.141 0.958 1.359 1.178 0.982 1.413 1.007 0.774 1.311 -5017 -125302496 1.054 0.898 1.236 1.130 0.964 1.323

InitialTeachingAlphabet(I.T.A.) 1.352 0.987 1.853 1.489 * 1.063 2.085 0.799 0.508 1.255 -7901 * -15290-513 1.111 0.833 1.482 1.014 0.767 1.340

Copydesignstestscore 1.209 ** 1.064 1.373 1.167 * 1.024 1.331 0.928 0.769 1.120 9474 ** 3289 156591.157 * 1.029 1.299 1.186 ** 1.056 1.331

Humanfiguredrawingtest 0.998 0.883 1.128 1.104 0.973 1.252 1.118 0.931 1.342 756 -5683 7196 1.054 0.943 1.178 1.029 0.922 1.149

Profiledrawingtestscore 0.893 * 0.799 0.999 0.928 0.827 1.041 1.059 0.897 1.249 -2337 -7547 2872 0.890 * 0.804 0.984 0.959 0.868 1.060

ReversedRutterbehaviouralscore 1.064 0.938 1.206 1.141 * 1.004 1.295 1.214 * 1.013 1.455 -4042 -9231 1146 1.110 0.991 1.243 1.045 0.933 1.171

Age10

Readingscore 1.251 0.966 1.621 1.383 * 1.066 1.796 0.846 0.582 1.230 -14232* -27610-854 1.019 0.807 1.286 1.021 0.811 1.285

BritishAbilityScalesscore 0.960 0.755 1.220 0.927 0.726 1.186 1.069 0.751 1.522 1714 -6739 101671.089 0.875 1.354 1.054 0.847 1.313

Mathsscore 1.141 0.888 1.466 1.177 0.912 1.520 1.001 0.690 1.452 16901** 7241 265601.136 0.907 1.423 1.244 0.994 1.556Academicself-concept 0.996 0.849 1.168 1.167 0.992 1.372 0.941 0.748 1.185 -4092 -103232139 1.138 0.985 1.315 1.059 0.917 1.223

Locusofcontrol 1.293 * 1.009 1.656 1.152 0.894 1.485 1.261 0.880 1.806 16192** 4759 276251.111 0.888 1.390 1.332 * 1.067 1.663

Self-control 1.266 * 1.036 1.547 1.445 *** 1.179 1.772 0.808 0.602 1.084 6822 -795 144391.323 ** 1.106 1.583 1.323 ** 1.106 1.581

Self-esteem 0.954 0.815 1.118 0.906 0.771 1.064 1.249 0.992 1.572 7847 ** 2045 136501.144 0.993 1.319 1.007 0.875 1.160

Socialskills 0.956 0.806 1.135 0.882 0.740 1.050 0.961 0.753 1.228 -2540 -110495968 1.106 0.947 1.291 1.159 0.995 1.350

Conscientiousness 0.990 0.793 1.237 0.938 0.750 1.173 0.918 0.665 1.267 692 -9601 109851.150 0.943 1.404 1.043 0.856 1.270


19

Extraversion 0.842 0.629 1.126 1.041 0.777 1.395 1.278 0.842 1.939 -3895 -146056814 0.881 0.678 1.144 0.829 0.638 1.077

Agreeableness 1.180 0.848 1.641 1.220 0.876 1.700 0.811 0.509 1.293 -4605 -19946107361.053 0.784 1.414 1.043 0.780 1.395

Neuroticism 1.062 0.834 1.353 1.152 0.904 1.469 1.455 * 1.032 2.050 2382 -8034 127971.219 0.981 1.515 1.208 0.972 1.501

Goodconductscale0.971 0.670 1.409 1.094 0.750 1.595 1.235 0.734 2.080 5426 -11033218850.882 0.631 1.233 0.962 0.694 1.333

Emotionalhealth 1.261 0.887 1.792 0.989 * 0.696 1.404 0.661 0.400 1.092 2094 * -11420156081.039 0.757 1.427 1.004 0.735 1.373

Age16

Cognitiveabilitycomposite 1.314 0.889 1.943 2.088 ** 1.370 3.183 0.758 0.405 1.418 5171 -7672 180141.062 0.742 1.522 1.008 0.709 1.432

Locusofcontrol 1.215 0.859 1.719 1.031 0.701 1.516 1.083 0.634 1.850 5344 -8310 189981.547 ** 1.122 2.132 1.246 0.912 1.701

Self-esteem 1.048 0.767 1.433 0.743 0.516 1.069 1.168 0.721 1.894 -1479 -18930159721.175 0.879 1.572 1.274 0.958 1.692

Challenge 1.272 0.936 1.727 0.973 0.695 1.363 1.184 0.737 1.904 -408 -12413115981.021 0.764 1.362 1.099 0.829 1.456

Socialskills 1.015 0.759 1.358 0.843 0.606 1.171 0.887 0.564 1.395 -13362 -27538813 1.239 0.943 1.627 1.172 0.896 1.532

Conscientiousness 0.591 * 0.361 0.966 1.015 0.599 1.720 0.554 0.232 1.325 -4312 -26232176091.174 0.751 1.835 1.031 0.661 1.609

Extraversion 1.607 0.892 2.896 1.920 * 1.011 3.646 1.357 0.546 3.373 -5446 -50599397071.241 0.729 2.112 1.934 * 1.131 3.307

Agreeableness 0.979 0.424 2.261 0.674 0.280 1.619 2.970 0.850 10.37 -2961 -33016270930.768 0.361 1.634 1.128 0.541 2.350

Neuroticism 1.250 0.777 2.010 1.223 0.733 2.041 1.198 0.612 2.346 -569 -20405192671.233 0.793 1.918 1.280 0.832 1.968

Goodconductscale1.629 0.709 3.742 1.532 0.620 3.785 0.759 0.192 3.008 5770 -22918344571.069 0.493 2.315 0.759 0.346 1.663

Emotionalhealth 0.624 0.370 1.051 0.661 ** 0.377 1.157 0.826 0.376 1.818 11519 -25129481660.918 0.569 1.481 0.625 * 0.394 0.991Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”.Resultsbasedonnon-standardisedvariables.


20

3.3 SelectionofcontrolvariablesThe regression analysis box in Section 3.1 summarised the control variables included in the analysiswhen examining the

relationshipsbetweenchildhoodskillsandadultfinancialoutcomes.Thissectiondiscussestheprocedurewhichwasfollowed

fortheselectionofthesecontrolvariables.

TheBCS70providesawidesetofdemographic,personalandfamilycharacteristicswhichcouldpotentiallybeusedascontrol

variables in the modelling process. However, controlling for all available demographics and family characteristics is not

necessary,astheyarenotallexpectedtoimpactthefinancialoutcomeofinterest;andwouldnotbepractical,as:

1) includingallpossiblecontrolvariableswouldfurtherrestrictthesamplesizefortheanalysisofeachoutcome,since

notalldemographicandfamilycharacteristicsquestionsareansweredbyallrespondents;

2) includingalargesetofvariablesineachmodelwouldleadto“over-fitting”ofthemodel,i.e.theeconometricmodel

mightpickoutspuriouscorrelationandfalselyidentifyrelationshipswheretheydon’texist,orunder-estimatethe

impactofskillsandbehaviourvariables.

Therefore, including toomany control variableswould obstruct the identification of the true impact of skills on financial

outcomes.

Asaresult,theselectionofthe“optimalset”ofcontrolvariablesisabalancingact.Inordertoselectasensiblelistofcontrol

variablessothattheestimatedimpactofskillsisreliableandrobust,whilstthesamplesizesarelargeenoughandtheresults

arecomparablebetweenthedifferentfinancialoutcomes,thefollowingprocedurewasimplemented,forthesetofvariablesatage5,age10andage16separately:

n Pre-selectionofcontrolvariables:ThefulllistofinformationavailableintheBCS70wasrestricted,usingexistingknowledge

ofwhattypesofvariablesmightimpactlaterlifeoutcomes.Theinitiallistofcontrolsconsideredincludedvariablesthat

captureinformationon:

n generaldemographics(includingchild’sgender,ethnicity);

n socialclassofthefamily;

n familyincome;

n parentaleducation;

n parentalemploymentstatus;

n householdcomposition;

n descriptionofthehouseandneighbourhood;

n maternalattitudes;

n youngagefinancialsocialisation;

n weeklyspendingmoney;

n teenageemployment;

n moneyreceivedlastweek;and

n financialknowledge.

n Initialmodeltesting:Allfinancialoutcomes17weremodelledusingmultivariateregressionanalysis,wheretheindependent

variablesusedincluded:

n thecompositemeasureofcognitiveskillattherespectivechildhoodage;

n thelistofindividualnon-cognitiveskillsattherespectivechildhoodage(exceptforage5,wherenon-cognitiveskillsarenotavailableintheBCS70);

n thereversedRutterbehaviouralscoreattherespectivechildhoodage;and

n thefulllistofpre-selectedcontrolvariablesattherespectivechildhoodage.

________________________________________________________________________________

17Wherefinancialoutcomesareavailablebothatages34and42,onlythefinancialoutcomeatage34wasusedforthecontrol

variablesselectionprocess.


21

Unlike for cognitive skills andbehavioural variables, thenon-cognitive skillswere included individually rather than as one

compositemeasure.Thisapproachwaschosenascompositemeasuresofnon-cognitiveskillsgenerallyperformworsethan

those of cognitive skills and so the individual non-cognitive skillswere used for the control variable selection in order to

appropriatelydifferentiatebetweenvariationexplainedbyskillsandvariationexplainedbypotentialcontrols.

Themodellingtechniqueusedineachmodelwaschosentocorrespondtothefinancialoutcome.

n Firstelimination:Foreachgivenage,separately,allcontrolvariablesthatdemonstratednostatisticallysignificantimpact

atthe90%confidencelevelinanyoftheadultfinancialoutcomeswereremovedaltogether.Ifacontrolvariableexplained

evenonefinancialoutcome(i.e.wasstatisticallysignificantinanyofthemodelsconsidered),itwaskeptinthelistofcontrol

variables.

n Repeateliminations:Theprocessofvariableeliminationwasrepeatedanumberoftimes,untileachcontrolvariablefinally

selectedwasidentifiedasbeingofinterestinatleastoneofthefinancialoutcomemodels.Thecontrolvariablesforage5

wereselectedafterthesecondroundofelimination;thoseatage10–afterthefirstroundofelimination;andthoseatage

16–afterthethirdroundofelimination.

Thisisafairlyconservativeapproachwhichminimisestheriskofomittingimportantpersonalanddemographiccharacteristics,

andatthesametimeutilisesasufficientlylargesample.Theendlistofvariablesselectedisprovidedinthetablebelow,and

detailsontheunderlyingvariablesfromBCS70areprovidedinAnnex1ofthisdocument.

Table5:Detailedlistofselectedpersonalandfamilybackgroundcharacteristics,bychildhoodage

Demographic/familyvariableorvariablegroup Age5 Age10 Age16

Child’sgender ü ü ü

Child’sethnicity: ü ü

Indian,PakistaniorBangladeshi ü ü

IrishorotherEuropean ü ü

British ü

Gestationalageatbirth ü ü

Ageofparentsatthetime ü

Ageoffather ü

Ageofmother ü

Numberofpersons/childreninhousehold ü ü

Nootherchildreninhousehold ü

Numberofchildreninhousehold ü

Numberofpersonsinhousehold ü

Parents’highestlevelofeducationachieved ü ü ü

Father’shighestqualification:vocational ü

Father’shighestqualification:0-levels ü ü ü

Father’shighestqualification:A-levelsorhigher ü ü ü

Mother’shighestqualification:vocational ü ü

Mother’shighestqualification:0-levels ü ü

Mother’shighestqualification:A-levelsorhigher ü

Parents’employmentstatus ü

Fatherisinregularemployment ü

Motherislookingafterthehome ü

Parents’socialclass: ü ü ü

CategoryIorII ü ü

CategoryVorvoluntarywork ü ü

Familyincome ü ü

Familyincomeisbetween£35-£99perweek ü


22


Familyincomeisabove£100perweek ü



Familyincomeisabove£500perweek ü

Familyreceivesbenefits ü

Parents’homeownership ü

Neighbourhoodsocialrating ü

Neighbourhoodis‘welltodo’ ü

Neighbourhoodis‘rural’ ü

Attitudetomaternalemployment ü

AttitudetoTVviewing ü

Attitudetochildindependence ü

Authoritarianchildrearing ü

Mother’smalaisescore ü ü

Smalljobsandsmallpurchaseskills ü

Childusesmoneyforsmallpurchases ü

Childdoessmalljobsforareward ü

Childdoesnotreceivemoneyregularlybutborrows ü


23

ExploringthepathwaysfromchildhoodskillstoadultfinancialoutcomesChapter4ofthemainreportexaminestheroleofintermediateoutcomes–thingsthatoccurbetweenchildhoodandtheages

whenadultfinancialoutcomesareobserved–suchaseducationalattainment,employmentstatus,maritalstatus,incomeand

homeownership. Intermediateoutcomesare found tooftenchannel the linkbetweenchildhood skills andadult financial

outcomes.Anexampleofthisisachildwithhighercognitiveskillsbeingmorelikelytoattenduniversity,whichitselfislinked

toahigherlikelihoodofpensionsaving.Wealsofindthatthesameintermediateoutcomescanoperateaspathwayswhich

protectchildren fromadverse financialoutcomes inadulthood, in thatachievement in theseareas raisesthe likelihoodof

positiveoutcomesforchildrenofallcognitiveskilllevels.

ThischapterprovidesmoredetailthaninpresentedinChapter3ofthemainreportontherelationshipbetweenchildhood

skillsandawiderangeofintermediateoutcomes.

Intermediateoutcomeshavebeencategorisedintotwogroups,lifeeventsandotherintermediateoutcomes.Thevariables

usedinthesubsequentanalysiswere:

n Lifeevents:

o Owningahome

o Maritalstatus–beingmarriedvs.not;beingdivorcedvs.not

o Whetherthereareanydependentchildreninthehousehold;aswellasthenumberofchildren

n Otherintermediateoutcomes:

o Economicallyactivevs.inactive

o Inemploymentorself-employmentvs.unemployed

o Part-timevs.full-timeemployment

o Publicvs.privateemployment

o Educationallevel:highestlevelofNVQ(NationalVocationalQualification)achieved

o Individualincome














24

FurtherdetailsonwhichunderlyingBCS70variableswereusedfortheseintermediateoutcomevariablesareprovidedin

Annex1ofthisdocument.

4.1 TherelationshipbetweenskillsandintermediateoutcomesThefirststepintheinvestigationoftheroleofintermediateoutcomeswastoanalysetherelationshipbetweenchildhoodskills

andintermediateoutcomes.

Thisstageoftheanalysisservedasan intermediatesteptowardstheexplorationofthepathwaysfromchildhoodskills to

financialoutcomes.Itspurposewasnottoestablishanimpactoflifeeventsandotherintermediatelifeoutcomesonadult

financial outcomes, but rather to identify those intermediate outcomes which are most likely to act as channels of the

relationshipbetweenskillsandfinancialoutcomes.

TheresultsareshowninTable6andTable7.Mostofthelifeevents,especiallyowningahomeandbeingmarried,appearto

berelatedtoskills.Similarly,weobservesystematicpositiverelationshipsbetweenskillsandtheotherintermediateoutcomes.

Thisisparticularlythecaseforeducation(‘highestlevelofNVQachieved’).Thoselifeeventsandintermediateoutcomeswhich

haveastatisticallysignificant18linkwithmostskillsandatmostageswereselectedtobeexploredfurtheraschannelsofthe

impactof skillsonadult financialoutcomes inChapter3of themain report (methodologydiscussed inSection4.2of this

document).

________________________________________________________________________________

18Atthe95%confidenceinterval

Regressionanalysistoestimatetherelationshipsbetweenskillsandintermediateoutcomes

Therelationshipsbetweenchildhoodskillsandintermediateoutcomeswereinvestigatedthroughregressionanalysisusing

atechniqueappropriatefortheoutcomeofinterest, i.e.OrdinaryLeastSquaresforcontinuous intermediateoutcomes

andlogitregressionforbinaryintermediateoutcomes.Thebasicformoftheequationis:

!"#$%&$'()#$+,#-+&$ = / + 1234(556)#-7(5'7++')8$ + 92:+"#%+56)#-7(5'7++')8$Thistypeofequationwasestimatedseparatelyforeachlong-termintermediateoutcome,usingthecompositemeasures

of cognitive, non-cognitive and behavioural skills measured at childhood. A full set of control variables measured at

childhoodwerealsoincluded,whichwerealsoincludedinallsubsequentanalyses.Thecontrolswere:

nGender,ethnicity,gestationaltime,ageofparents

nNumberofpeopleinthehousehold,familyincome,homeownershipstatus,neighbourhoodsocialrating

nParents’highesteducationalattainment,employmentstatus,socialclass

nMother’sattitudetomaternalemployment,TVviewing,childindependenceandchildrearing

Theanalysiswasperformedatageofthechildhoodagesseparately.


25

Table6:Identificationofstatisticallysignificantrelationshipsbetweenskillsinchildhoodandadultlifeevents

Owningyourhome(age34)

Owningyourhome(age42)

Beingmarried(age34)

Beingmarried(age42)

Beingdivorced(age34)

Beingdivorced(age42)

Numberofchildreninthehousehold(age34)

Numberofchildreninthehousehold(age42)

Whetheranychildreninthehousehold(age34)

Whetheranychildreninthehousehold(age42)

Age5 Cognitiveability

ReversedRutter

BehaviouralScore


Non-cognitiveability

ReversedRutter

BehaviouralScore

Age16 Cognitivebehaviour


ReversedRutter

BehaviouralScore

Legend: Positivestatisticallysignificantlink Nostatisticallysignificantlink Negativestatisticallysignificantlink


26

Table7:Identificationofstatisticallysignificantrelationshipsbetweenskillsinchildhoodandotherintermediateoutcomes

Economic-allyactive(age34)*

Economic-allyactive(age42)*

Employed(age34)

Employed(age42)

Workingfull-time(age34)**

Workingfull-time(age42)**

Workinginthepublicsector(age34)***

Workinginthepublicsector(age42)***

HighestlevelofNVQachieved(age34)^

HighestlevelofNVQachieved(age42)^

Individualincome(age34)

Individualincome(age42)


ReversedRutter

BehaviouralScore



ReversedRutter

BehaviouralScore



RutterBehavioural

Score

*Economicallyactiveisdefinedasbeingavailableforlabour,i.e.beinginthelabourforce.Therefore,thisvariableis1ifsomeoneiseither(self-)employedorseekingwork.Inthe2004and2012wavesoftheBCS70,there

areveryfewpeoplewhoareclassifiedundereconomicallyactivebutnotemployed.**Asopposedtoworkingpart-time.***Asopposedtoworkingintheprivatesector.^ThehighestlevelofNVQachievedcanbeof

vocationalaswellasacademictype

Legend: Positivestatisticallysignificantlink Nostatisticallysignificantlink Negativestatisticallysignificantlink


27

4.2 TheroleofintermediateoutcomesinchannellingthelinkbetweenchildhoodskillsandadultfinancialoutcomesThenextstageoftheanalysiswastoevaluatewhethersomeofthelinksbetweenchildhoodskillsfinancialoutcomesinadultlife are channelled through intermediate outcomes. Educational attainment and employment statuswere found to oftenchannelthelinkbetweenchildhoodskillsandadultfinancialoutcomes.ThemethodologyispresentedintheboxbelowandTable8–Table8providetheresultsforthoseintermediateoutcomesdiscussedinSection3.2ofthemainreport.ResultsforthefullsetofintermediateoutcomestestedcanbefoundintheExceldocumentsupplementingthistechnicalreport.

TheresultsinTable6–Table8demonstratethelinkbetweenchildhoodskillsandadultfinancialoutcomes,oncetherespectiveintermediateoutcomeisconsidered.Thepresentationofresultsisorganisedaccordingtotypeofskill,andthenbyageofskill.Anintermediateoutcomeisidentifiedasachannelifthereisnostatisticallysignificantlinkbetweenchildhoodskillsandadultfinancialoutcomesoncetheintermediateoutcomehasbeenaccountedfor.

Forinstance,previousanalysisdiscussedinSection3.1identifiedthatthereisastatisticallysignificantrelationshipbetweencognitiveskillsatage5andregularsavingatage34.However,wheneducationalattainmentisaccountedfor,thelinkbetweencognitiveskillsatage5andregularsavingatage34isnolongerstatisticallysignificant.Therefore,wesaythateducationalattainmentchannelsthelinkbetweencognitiveskillsatage5andregularsavingatage34.Incaseswheretheresultssuggestchannellingofthe linkbetweenachildhoodskillandanadult financialoutcome,theeffect ismarked inbold inthetablesoverleaf.

Incontrast,thelinkbetweencognitiveskillsatage16andpensionsavingatage34isstatisticallysignificantandremainssuchevenafteraccountingforanyoneoftheaforementionedintermediateoutcomes.Therefore,weconcludethattherelationshipbetweencognitiveskillsandpensionsavingatage34hasbeguntocementbytheageof16.

Regressionanalysistoidentifywhichintermediateoutcomeschannelthelinksbetweenskillsandfinancialoutcomes

Toinvestigatetheextenttowhichintermediateoutcomeschanneltheeffectofchildhoodskillsonadultfinancialoutcomes,theadultlifeeventsandotherintermediateoutcomeswereaddedtothemodelestimatedintheprevioussection.Eachintermediateoutcomewastestedoneatatime.Thebasicformoftheequationis:

!"#$#%"$&()*%(+,-= / + 1234"&&-$*%5"&65((6$7, + 829(#*:(&-$*%5"&65((6$7,+ ;2<#*,:+,6"$*,()*%(+,


28

Table8:Whichintermediateoutcomeschannelthelinkbetweencognitiveskillsinchildhoodandadultfinancialoutcomes?

Intermediateoutcome Regularsaving

(age34)Pensionsaving(age34)


Netwealth(age42)



Age5

Nointermediateoutcomeadded 1.134* 1.241*** 1.076 5370* 1.115* 1.153**

Educationalattainment:HighestattainedNVQlevel 1.025 1.103 - 3403 1.031 1.045

Employedorself-employed(vs.notinemployment) 1.111 1.209** - 5774* 1.091 1.093

Income - - - 5508* 1.045 -

Homeowner 1.081 1.167** - 1.060 1.045

Married 1.123* 1.239*** - 4948* 1.104 1.799***

Age10

Nointermediateoutcomeadded 1.438*** 1.580*** 0.861 5912 1.284** 1.404***

Educationalattainment:HighestattainedNVQlevel 1.214 1.298* - - 1.154 1.210*

Employedorself-employed(vs.notinemployment) 1.395*** 1.508*** - - 1.228* 1.357**

Income - - - - 1.146 -

Homeowner 1.361** 1.489*** - - 1.194* 1.302**

Married 1.450*** 1.583*** - - 1.289** 1.355**

Age16

Nointermediateoutcomeadded 1.392 2.171*** 0.794 8657 1.093 0.963

Educationalattainment:HighestattainedNVQlevel - 1.790** - - - -

Employedorself-employed(vs.notinemployment) - 2.524*** - - - -

Income - - - - - -

Homeowner - 2.161*** - - - -

Married - 2.167*** - - - -

Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”.

Resultsareonlypresentedwhereastatisticallysignificantrelationshipbetweentheskillandthefinancialoutcomewasidentifiedpriortocontrollingforanyintermediateoutcomes.


29

Table9:Whichintermediateoutcomeschannelthelinkbetweennon-cognitiveskillsinchildhoodandadultfinancialoutcomes?




Netwealth(age42)



Age5 -------------Notcapturedatage5-------------

Age10

Nointermediateoutcomeadded 1.204* 1.261** 1.071 12548*** 1.606*** 1.553***

Educationalattainment:HighestattainedNVQlevel 1.169 1.231* - 12081** 1.581*** 1.501***

Employedorself-employed(vs.notinemployment) 1.181 1.218 - 12743** 1.585*** 1.523***

Income - - - 11566** 1.580*** -

Homeowner 1.143 1.193 - 11790** 1.528*** 1.462***

Married 1.171 1.250* - 12424** 1.573*** 1.534***

Age16

Nointermediateoutcomeadded 1.357 0.825 1.146 -6,248 1.631** 1.535**

Educationalattainment:HighestattainedNVQlevel - - - - 1.590* 1.511**

Employedorself-employed(vs.notinemployment) - - - - 1.653** 1.553**

Income - - - - 1.555** 1.408*

Homeowner - - - - 1.591** 1.507**

Married - - - - 1.633** 1.502**




30

Table10:Whichintermediateoutcomeschannelthelinkbetweenbehaviourinchildhoodandadultfinancialoutcomes?




Netwealth(age42)



Age5

Nointermediateoutcomeadded 1.073 1.146** 1.212* -3599 1.113 1.053

Educationalattainment:HighestattainedNVQlevel - 1.122 1.209* - - -

Employedorself-employed(vs.notinemployment) - 1.064 1.215* - - -

Income - - 1.192 - - -

Homeowner - 1.125 1.206* - - -

Married - 1.142* 1.233* - - -

Age10

Nointermediateoutcomeadded 1.153 1.301** 1.111 2108 1.077 0.938

Educationalattainment:HighestattainedNVQlevel - 1.270** - - - -

Employedorself-employed(vs.notinemployment) - 1.220 - - - -

Income - - - - - -

Homeowner - 1.261* - - - -

Married - 1.299** - - - -

Age16

Nointermediateoutcomeadded 1.215 1.608** 1.728* 3936 1.368 1.530**

Educationalattainment:HighestattainedNVQlevel - 1.580* 1.715* - -

Employedorself-employed(vs.notinemployment) - 1.765* 1.745* - -

Income - - 1.713* - -

Homeowner - 1.532* 1.732* - -

Married - 1.658** 1.729* - -



31

4.3 Protectivepathwayseffectiveforlow-skilledindividualsSection3.3.2ofthemainreportfindsanumberofprotectivepathwayswhichareeffectiveforindividualswithlowlevelsofskillsatage10–theageatwhichthelinkwithskillsbeginstoembed:

n Ahighlevelinoneskillcaninmanycasescompensateforalowlevelinanotherskill.

n Vocationaleducationandemployment (particularlypaidemployment)canbothmoderate theeffectof lowcognitiveskills.

n Highlevelsofqualificationsandacademiceducation,employmentandhavingaskilledoccupationcancompensateforlownon-cognitiveskills.

Toinvestigatewhichprotectivepathwaysareeffectiveforlow-skilledindividuals,thesameregressionspecificationdescribedintheprevioussectionwastestedonthesub-sampleof individualsatthebottomoftheskillsdistribution.Wherethe linkbetweenaprotectivepathwayandfinancialoutcomesisstatisticallysignificant,theprotectivepathwayissaidtobeeffectiveamongthelower-skilledgroup.

SimilarlytotheapproachinSection4.2,theanalysisforthisstrandwasperformedonlywherealinkbetweenchildhoodskillsandfinancialoutcomeswasfound(asdemonstratedinSection3.1).Theapproachtodefininglowskillsisexplainedintheboxbelow,andthestatisticalresultsofthisstrandofanalysisarepresentedinTable11-Table13overleaf.

Forthisstrandofanalysis,weconsideredawiderrangeofpotentialprotectivepathwaystothatinSection4.2,namely:

n levelofeducation;

n educationalpath(whetherthehighestlevelofqualificationachievedisofvocationaloracademictype);

n employmentmode,i.e.paidorself-employment;

n typeofemployment;and

n higherlevelsofotherskills.

FurtherdetailsontheunderlyingBCS70variablestoconstructtheseadditionalprotectivepathwaysareprovidedinAnnex1ofthisdocument.

Defininglowskills

Inordertosplitthesampleintwogroupsaccordingtothelevelofskill,wehadtoselectacut-offpointattheskilldistribution,sothatallindividualsbelowthiscut-offwouldbeconsideredlow-skilled.

Todoso,weusedadatadrivenapproach:weplottedtheaveragefinancialoutcomelevelsateachquintileoftheskillsdistribution.Iftherewasanotablejumpintheoutcomeaveragesfromonequintiletothenext,thenthisquintilewasacandidatecut-offpoint.Themostcommoncandidatecut-offpointacrossfinancialoutcomesandskilltypeswasat20%oftheskillsdistribution.

Sincetheresultscanbesensitivetotheselectionofacut-offpoint,weperformedrobustnesschecksusingtheothertwomostcommoncandidates–at15%and25%oftheskillsdistribution.Overall,theresultswerenotverysensitivetotheselectionofacut-offpoint.

32

Table11:Whichprotectivepathwaysareeffectiveforindividualswithlowcognitiveabilityatage10?

ProtectivepathwayRegularsaving(age34)


Netwealth(age42)



Educationalattainment:HighestattainedNVQlevel

NVQLevel1(vs.noeducation) 3.826*** 1.898 - 1.701 1.158

NVQLevel2(vs.noeducation) 3.206*** 1.348 - 1.178 1.434NVQLevel3(vs.noeducation) 2.852* 1.585 - 1.493 2.941**NVQLevel4(vs.noeducation) 3.919*** 2.710** - 1.118 1.847NVQLevel5(vs.noeducation) 7.789 - - 0.479 3.268

Educationalpath

Academiceducation(vs.noeducation)

3.669** 1.288 - 1.151 1.148

Vocationaleducation(vs.noeducation)

3.711*** 1.769* - 1.385 1.744*

Employment Employedorself-employed(vs.notemployed)

2.699** - - 2.502*** 2.231**

Employmentmode

Paidemployee(vs.notemployed)

2.769** 150.24*** - 2.432*** 2.229**

Self-employed(vs.notemployed) 1.885 - - 4.012*** 2.242*

Employmenttype

I-Professional(vs.V-Unskilled) - - - 0.135 0.955II-Managerial-technical(vs.V-Unskilled)

2.091 2.304 - 2.253 1.761

III-Skillednon-manual(vs.V-Unskilled)

1.05 5.727** - 0.639 0.944

III-Skilledmanual(vs.V-Unskilled) 1.129 1.436 - 1.164 1.164IV-Partlyskilled(vs.V-Unskilled) 0.698 1.302 - 0.679 1.101

OtherskillsHighchildhoodnon-cognitiveskills

1.484 1.224 - 1.820** 1.148

Highchildhoodbehaviouralskills 1.799** 1.935** - 1.233 1.088Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”.Nostatisticallysignificantlinkwasfoundbetweencognitiveskills(age10)andnetwealth.Table12:Whichprotectivepathwaysareeffectiveforindividualswithlownon-cognitiveabilityatage10?



Netwealth(age42)




NVQLevel1(vs.noeducation) 1.233 2.320* 4962 0.62 1.322NVQLevel2(vs.noeducation) 2.091* 1.889* 4933 0.959 1.589NVQLevel3(vs.noeducation) 2.091 1.626 10052 1.024 2.355**NVQLevel4(vs.noeducation) 1.82 2.684** 12697** 1.094 1.889*NVQLevel5(vs.noeducation) 2.37 2.684** 20836* 1.128 3.180*

Educationalpath

Academiceducation(vs.noeducation)

2.098* 2.356** 11542** 0.956 1.866*

Vocationaleducation(vs.noeducation)

1.877 1.917** 11542* 0.912 1.638*

Employment Employedorself-employed(vs.notemployed)

2.303** 100.633***

1192 2.193*** 2.449***

Paidemployee(vs.notemployed)

2.348** 133.79***

2137 2.125** 2.601***

33



Netwealth(age42)



Employmentmode Self-employed(vs.notemployed)

1.8 2.328 -5254 3.303** 1.772

Employmenttype

I-Professional(vs.V-Unskilled) 10.723 12.347* 27648 3.762 2.423II-Managerial-technical(vs.V-Unskilled)

0.91 3.793* 7996 3.446** 2.444

III-Skillednon-manual(vs.V-Unskilled)

0.878 4.643* 10205 1.955 2.195

III-Skilledmanual(vs.V-Unskilled) 0.919 3.296* 3972 2.039 1.663IV-Partlyskilled(vs.V-Unskilled) 0.919 2.253 1084 1.213 1.443

OtherskillsHighchildhoodcognitiveskills 2.172** 2.655*** -103.2 1.983** 1.209

Highchildhoodbehaviouralskills 1.324 1.688** 3527.6 0.822 1.182Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”.

Table13:Whichprotectivepathwaysareeffectiveforindividualswithlowbehaviouralscoreatage10?



Netwealth(age42)




NVQLevel1(vs.noeducation) - 2.888* - - -NVQLevel2(vs.noeducation) - 2.286* - - -NVQLevel3(vs.noeducation) - 3.312** - - -NVQLevel4(vs.noeducation) - 3.445** - - -NVQLevel5(vs.noeducation) - 7.034** - - -

Educationalpath

Academiceducation(vs.noeducation) - 2.277 - - -

Vocationaleducation(vs.noeducation) - 3.065 - - -

Employment Employedorself-employed(vs.notemployed) - - - - -

Employmentmode

Paidemployee(vs.notemployed) - 52.864**

* - - -

Self-employed(vs.notemployed) - - - - -

Employmenttype

I-Professional(vs.V-Unskilled) - 16.249** - - -II-Managerial-technical(vs.V-Unskilled) - 11.284** - - -

III-Skillednon-manual(vs.V-Unskilled) - 15.124** - - -

III-Skilledmanual(vs.V-Unskilled) - 4.58 - - -IV-Partlyskilled(vs.V-Unskilled) - 3.818 - - -

OtherskillsHighchildhoodcognitiveskills - 1.666* - - -Highchildhoodnon-cognitiveskills - 1.705* - - -

Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”.Behaviouratage10hasastatisticallysignificantlinkonlywithpensionsaving(age34)

34

Testingtheimpactofpersonalandfamilybackgroundcharacteristics

5.1 Demographicsubgroupsathigherriskofhavingadversefinancialoutcomes

Section 4.1 of the main report discusses which demographic subgroups, in terms of personal and family backgroundcharacteristics in childhood, were found to be more at risk of adverse financial outcomes in adulthood: such as femaleparticipants;thosewhogrewupinahouseholdwithmorethanthreechildren;andthosewithlesseducatedparents.

Whenwetestwhichdemographicsubgroupsaremoreatriskofadversefinancialoutcomes,theresultsarebasedonthesameregression models used to identify links between childhood skills and adult financial outcomes, but the focus is on thecoefficientsassociatedwiththecontrolvariablesinthemodels.ThemethodologyofthisanalysisisdescribedinSection3.1ofthisdocument,anddetailsonthecontrolvariablesusedforthisanalysisandtheunderlyingBCS70variablesarepresentedinAnnex1ofthisdocument.

Table13ofthemainreportpresentsthedifferencesbetweendemographicsubgroupsintermsoftheriskofadversefinancialoutcomes,wherethesedifferencesarestatisticallysignificant.Thefullsetofstatisticalresultsforthecontrolvariablesineachoftheage10modelsispresentedinTable14inthisdocument.

Anegativeeffectsize,oranoddsratiobelow1, impliesthatthegivendemographicsubgrouphasexperiencedonaveragelowerlevelofagivenadultfinancialoutcome,aftercontrollingfortheinfluenceofskillsontheadultfinancialoutcome.Greenshadingindicatesapositiveandstatisticallysignificantrelationshipbetweenthepersonalorfamilybackgroundcharacteristicinchildhoodandtheadultfinancialoutcome(i.e.therelationshipappearsstrongenoughthatit isunlikelybetheresultofrandomchance).Pinkshadingindicatesanegativeandstatisticallysignificantrelationship.Table14:Linkbetweenpersonalandfamilybackgroundcharacteristicsandadultfinancialoutcomes

Personalorfamilybackgroundcharacteristicatage10




Netwealth(age42)



Female(vs.male) 1.081 0.604*** 0.877 -7616* 0.040 0.150*

Ethnicity:British 2.405 0.954 0.408 8651. 0.298 0.630

Ethnicity:Other(European) 1.012 0.395 0.531 10745 0.431 0.578

Ethnicity:Indian,PakistaniorBangladeshi 7.096** 1.221 0.133* 68888* 0.738 0.894Socialclassofthefamily:III(non-manualormanual) 0.973 1.067 1.043 -2734 -0.07 -0.07

Socialclassofthefamily:IV-V(partly-skilledorunskilled) 0.839 0.987 0.940 -6377 -0.16 -0.12

Familyincome:between£35-£99perweek 0.769 1.109 0.286 20769 -0.44 1.139*

Familyincome:between£100-£149perweek 0.865 1.156 0.348 24155 -0.39 1.131*

Familyincome:£150perweekormore 0.836 1.206 0.270 27132 -0.25 1.240*Parentaleducation:Father’shighestqualificationisO-levels 1.233* 1.151 1.080 382.3 0.165 0.086

Parentaleducation:Father’shighestqualificationisA-levelsorhigher 1.246* 1.295* 0.844 1244. 0.222* 0.234*

Parentaleducation:Mother'shighestqualificationisvocational 1.116 1.159 1.032 8069. -0.08 0.010

35

Personalorfamilybackgroundcharacteristicatage10




Netwealth(age42)



Parentaleducation:Mother'shighestqualificationisA-levelsorhigher 1.027 0.950 1.013 8895. 0.130 0.271*

Parentalemployment:Oneparentinregularemployment 0.970 0.859* 0.944 2733. 0.012 0.033

Parentalemployment:Neitherparentinregularemployment 1.002 0.619 0.969 483.9 -0.33 -0.11

Parentalfiguresinhousehold:oneparentalfigureonly(biological,adoptiveorstep) 0.661 0.629 1.083 4382. -0.27 -0.01

Parentalfiguresinhousehold:infostercare/oldersiblings/grandparents/other - 0.278 - -1035 -0.26 -1.11

Numberofchildreninhousehold:threeormorechildren 0.807** 0.993 1.146 -2140 -0.17* -0.03

Childusesmoneyforsmallpurchases 1.005 0.996 0.996 243.1* 0.002 -0.00

Childdoessmalljobsforareward 0.994** 0.998 0.997 -49.4 0.000 0.001

Mother’smalaisescore 0.999 1.000 1.000 -1.50 -0.00 -0.00

Gestationaltime 1.001 1.001 0.998 -3.58 -0.00 0.003Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”.Legend:

Demographicgrouphasstatisticallysignificantlyhigherlevelsoffinancialoutcome

Demographicgrouphasstatisticallysignificantlylowerlevelsoffinancialoutcome

Nostatisticallysignificantdifferencefoundinfinancialoutcomebetweengroups

5.2 Subgroupsaffecteddisproportionatelybyhavingdifferentlevelsofskills

Section4.2ofthemainreportexamineswhetherskillsandpersonalandfamilybackgroundcharacteristicsinteractwitheachotherinthewaythatimpactsachild’sfuturefinancialoutcomes,i.e.thelinkwithchildhoodskillsandadultfinancialoutcomeswouldbegreater foronedemographicsubgroupthan foranother.Section4.2of themainreportshowsthatacrossmostsubgroups,thisisnotthecase.However,therearesomedifferences:cognitiveskillsarefoundtohaveastrongerlinkwithfemaleparticipants’regularsaving(atage34)thanformaleparticipants’,andbehaviourhasastrongerlinkwiththefinancialoutcomesofindividualswhohavegrownupinhouseholdswiththreeormorechildren.

This strand of analysiswas performedon a smaller set of personal and family background characteristics than the set ofvariablespresentedabove,wherethewideracademicliteratureandtheMoneyAdviceServicesuggestedhypothesesaboutpotentialdifferences.Thechildhoodpersonalandfamilybackgroundcharacteristics investigatedinthispartoftheanalysiswere:

n gender;

n homecountryofresidence;

n numberofparentalfiguresandnumberofchildreninthehousehold;

36

n socialclass,familyincomeandparentalemployment.

Table 15 below presents the statistical results for the interaction variables, which represent whether the respectivedemographic subgroup is affected disproportionately by having different levels of skills in terms of their adult financialoutcomes.Anegativeeffectsizeinthecaseofnetwealthandfinancialself-assessment,oranoddsratiobelow1inthecaseofregularsaving,pensionsavingandlowdebt-to-incomeratio(markedinpinkwherestatisticallysignificant)implythatthegivendemographicsubgrouphasexperiencedonaverageaweakerrelationshipbetweentherespectivechildhoodskillandtheadultfinancialoutcome.

For instance,Table14demonstratedthatthelikelihoodofregularsavingatage34isnotstatisticallysignificantlydifferentbetween male and female participants with otherwise similar levels of skills and personal and family backgroundcharacteristics.However,Table15showsthatonaverage,femalesurveyparticipantswithhighlevelsofcognitiveskills19aremorelikelytosaveregularlycomparedtomalesurveyparticipantswithhighlevelsofcognitiveskills–theiroddsarehigherby0.58.Inotherwords,cognitiveskillsaremorestronglyrelatedtoregularsavingbehaviourforfemaleparticipantsthanformaleparticipants.

________________________________________________________________________________19Measuredbyatwostandarddeviationchange

Regressionanalysistoexploretheinfluenceofpersonalandfamilybackgroundcharacteristicsonthelinkbetweenskillsandadultfinancialoutcomes

The results presented belowwere obtained using a regression analysis approach similar to that generating the resultsdiscussedearlierinthissection.Thekeydifferenceinthisstrandoftheanalysisisthattheskillswereinteractedwithafewpersonalandfamilycharacteristicsofinteresttoexploreinteractionsbetweenskillsandfinancialoutcomes.Theinteractionbetweeneachdemographiccategoryandskillswasdoneonedemographiccharacteristicatatime,controllingforthefullsetofdemographiccharacteristicsasinpreviousstrandsoftheanalysis.Thebasicspecificationoftheregressionmodelis:

!"#$%'()*)+(*$,#%+,-.= 0 + 2345($$6*%+7($"7,,"*8. + 93:,)%;,$6*%+7($"7,,"*8.+ <345($$3=.-,8;*>7(+6#?8;,#>*%+7($"7,,"*8.

37

Table15:Arecertainsubgroupsaffecteddisproportionatelybyhavingdifferentlevelsofskills?

Differentialrelationshipwithskill(age10)




Netwealth(age42)



Gender Female(vs.male)

Cognitiveability 1.578** 1.267 2.180** 1518 0.376* 0.487**

Non-cognitiveability 0.665** 1.049 0.742 -10363 0.376 -0.378**

Behaviouralscore 0.934 0.901 1.629* -4849 0.051 -0.037

Homecountry

Wales(vs.England)

Cognitiveability 0.594 0.914 1.944 2914 0.397 0.322

Non-cognitiveability 1.773 1.338 0.498 -7669 -0.304 -0.218

Behaviouralscore 0.968 0.86 1.058 -624 -0.498 0.087

Scotland(vs.England)

Cognitiveability 0.664 0.804 1.586 -28418 -0.595* -0.153

Non-cognitiveability 2.388** 1.47 0.566 11166 0.732** 0.33


Numberofparentalfiguresinhousehold

Onebiological,adoptiveorstepparentalfigureonly(vs.two)

Cognitiveability 0.855 0.504 0.733 -38792 0.387 0.269Non-cognitiveability 3.423 2.945 1.024 23341 0.165 0.067

Behaviouralscore 0.754 1.259 2.373 13923 -1.689** -0.147

Fostercare/oldersiblings/grandparents/other(vs.two)

Cognitiveability - - - -610 2.059 0.081

Non-cognitiveability - - - -15275 -0.059 -3.276

Behaviouralscore - - - -4909 -1.463 1.037

Numberofchildreninhousehold

Threeormorechildren(vs.oneortwo)

Cognitiveability 1.048 1.099 0.933 -8846 0.018 -0.103

Non-cognitiveability 1.04 1.182 1.086 9322 -0.205 0.048

Behaviouralscore 1.467* 1.430* 0.751 -860 0.437** 0.146

Socialclassofthefamily

III(non-manualormanual)(vs.I-IIprofessional,managerialortechnical)

Cognitiveability 1.403 1.002 1.133 -1609 0.347 -0.276



Cognitiveability 0.768 0.713 0.902 3355 -0.39 -0.087

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Differentialrelationshipwithskill(age10)




Netwealth(age42)



IV-V(partly-skilledorunskilled)(vs.I-IIprofessional,managerialortechnical)

Non-cognitiveability 1.139 1.353 1.465 5471 -0.056 -0.183


Familyincome

Familyincome:between£35-£99perweek(vs.under£35perweek)

Cognitiveability - - 0.098 -4571 -1.696 1.748

Non-cognitiveability - - 60.95 23375 1.37 -1.472

Behaviouralscore - - 0.3 7704 1.662 0.014

Familyincome:between£100-£149perweek(vs.under£35perweek)

Cognitiveability - - 0.096 9998 -1.73 1.711


Behaviouralscore - - 0.268 9385 1.89 0.112

Familyincome:£150perweekormore(vs.under£35perweek)

Cognitiveability - - 0.108 2984 -1.701 1.931


Behaviouralscore - - 0.363 4866 1.615 -0.257

Parentalemployment

Oneparentinregularemployment(vs.bothparentsinregularemployment)

Cognitiveability 0.799 0.95 0.969 -2527 -0.147 0.186

Non-cognitiveability 1.213 1.186 0.852 1436 0.243 -0.02

Behaviouralscore 0.945 0.947 1.02 8518 0.136 0.036

Neitherparentinregularemployment(vs.bothparentsinregularemployment)

Cognitiveability 0.948 1.123 0.125* 5914 -0.153 0.247


Behaviouralscore 0.762 0.579 1.531 2948 0.398 0.194Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”.Wherenoresultsarepresented,thisisduetolackofsamplesizeortothemodelsnotconverging.Netwealthmeasuredinadditional£Legend:

Demographicgrouphasstatisticallysignificantlyhigherlinkbetweenskillandfinancialoutcome

Demographicgrouphasstatisticallysignificantlylowerlinkbetweenskillandfinancialoutcome

Nostatisticallysignificantdifferencefoundinlinkbetweenskillandfinancialoutcomeacross

groups

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TestingtherelationshipbetweenadultfinancialoutcomesandotheradultoutcomesChapter5ofthemainreportinvestigatestherelationshipbetweenadultfinancialoutcomesandotherimportantaspectsofadultlife,suchasmentalandphysicalhealthandlifesatisfaction.

Theseotheradultoutcomesconsideredinclude:

n Healthself-assessment(anassessmentofhealthinthepreviousyearonascalefrom‘poor’to‘excellent’)

n Absenceoflong-standingillness

n Lifesatisfaction(self-reportedsatisfactionwithlifesofar)

n Mentalhealth(measuredbythetotalMalaisescoreindicatingpsychologicaldistressordepression)

n Mentalwell-beingscale(WarwickEdinburghMentalWell-BeingScaleindicatingfeelingandfunctioningaspectsofmentalwellbeing)

n Keepingawayfromcrime(whethertheindividualhasnocontactwiththepolice,includingpolicecautioning,warningorarrest,andhasnotreceivedaconvictionincriminalcourt)

Chapter5of themainreportdescribeshowadult financialoutcomesarepositively linkedtomanyof theotheroutcomesconsidered.Thestrongestlinksarefoundwithhealthself-assessmentandlifesatisfaction,althoughlinkswithmentalhealtharealsoidentified.Forexample,thosewithalowdebt-to-incomeratioatage42aremorelikelytoratetheirhealthhigher,lesslikelytohavealongstandingillness,andonaverage,havebetterlifesatisfaction.Equally,individualswithhighamountsofdebt-to-incomelevelsaremorelikelytohavehealthissuesandwillhaveonaveragelowerlifesatisfaction.

ThischapteroftheTechnicalAppendixprovidesfurtherdetailonthemethodologyofidentifyingtherelationshipsbetweenadultfinancialoutcomesandotheradultoutcomes;someofthemethodologicalchallengesinestimatingtheserelationships;andthestepsundertakentoovercomethesechallenges.







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6.1 Whichfinancialoutcomesarelinkedtootheradultoutcomes?Theboxoverleafexplainsthemethodologywhichwasusedtoidentifytherelationshipsbetweenfinancialoutcomesandotheradultoutcomes.Theresultsofthisanalysisarepresentedinthemainreport.

Thestatisticalresultsoftheanalysisusingthenon-standardisedvariablesandthemostappropriateeconometrictechniquearepresentedinTable16below.

Table16:Linkbetweenadultfinancialoutcomesandotheradultoutcomes

Healthself-assessment

Absenceoflong-standingillness

Mentalhealth

Lifesatisfaction

Distancefromcrime

Mentalwell-beingscale

Regularsaving(age34) 1.188** 0.990 0.105** 0.199** 1.246** -

Pensionsaving(age34) 1.242** 1.015 0.126* 0.117* 1.324** -

Financialself-assessment(age34) 1.230** 1.077* 0.201** 0.332** 1.146** -

Lowdebt/incomeratio(age42) 1.320** 1.292** 0.010 0.190** - -0.139

Netwealth(age42) 1**a 1a +0 +0** - -0*

Financialself-assessment(age42) 1.284** 1.179** 0.092** 0.360** - 0.172*

Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statistical significance at 99.9% confidence interval”.Where no results are presented, this is due to the unavailability ofoutcomes at the respective BCS70wave.Health self-assessment reports odds ratios fromordered logit, absence of long-standingillnessanddistancefromcrimereportoddsratiosfromlogit,mentalhealth,lifesatisfactionandmentalwell-being

Regressionanalysistoestimatetherelationshipbetweenfinancialoutcomesandotheradultoutcomes

Inordertoisolatetherelationshipbetweenfinancialoutcomesandotheradultlifeoutcomes,itisimportanttocontrolfortheinfluenceofotherpersonalcharacteristicssuchasdemographics,lifeeventsandotherintermediateoutcomes,andindividuals’‘subjectivity’whenansweringwell-beingsurveyquestions..Thefullsetofadultcontrolsusedinthisstrandofanalysisislistedattheendofthisbox.

Similartotheanalysispresentedinprevioussections,thechoiceofregressiontechnique(OLSorlogitmodel)dependedonthecharacteroftheadultoutcome(continuousorbinaryvariable).Thebasicformoftheequationsusedtoestimatetherelationshipsbetweeneachfinancialoutcomeandeachotheradultoutcomewas:

!"#$%'#%(')*+ = - + /012343(24$'#%(')*+ + 506'3%7'$+4%4"#$%8''"

TheinvestigationofthelinkbetweenfinancialandotherlifeoutcomeswasundertakenseparatelyforthetwoadulthoodBCS70waves,age34andage42:

n Adultoutcomesobservedatage34(healthself-assessment;long-standingillness;mentalhealth;lifesatisfaction;andkeepingawayfromcrime)werelinkedtofinancialoutcomesandcontrolvariablesmeasuredatage34(regularsaving;pensionsavingandfinancialself-assessment).

n Adultoutcomesobservedatage42(healthself-assessment;long-standingillness;mentalhealth;mentalwell-being;and life satisfaction)were linkedtofinancialoutcomesandcontrolvariablesmeasuredatage42 (debt-to-incomeratio>0.25;netwealth;andfinancialself-assessment).

Theadulthoodcontrols,eachmeasuredatage34orage42respectively,included:

n Gender,ethnicityandregionofresidence;

n Number of children, cohabitation status and if cohortmember does not live with a partner, why not (includingbereavement,divorceorseparation);

n Highest educational attainment, employment status (including part-time vs. full-time employment and public vs.privatesectoremployment),individualincomeandhomeownership;

n Subjectivitymeasures:locusofcontrol,optimismandconfidencelevels.

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reportcoefficientsoflinearregression.Theeffectsofnetwealthisdenotedinpounds,causingitseffectsizestobetoosmalltobeobservedwhenroundingtothreedecimals.Toclarifytherelationshipswithnetwealth:a=positiveimpact;b=negativeimpact.

TheresultspresentedinSection5.1ofthemainreportshowedthatamongstallfinancialoutcomesincludedintheanalysis,financial self-assessmentwas themain driver of other adult outcomes. To allow for comparisonbetween the strength ofdrivers,theresultsinthemainreportarebasedonregressionanalysiswithstandardisedoutcomes.ThestatisticalresultsoftheanalysisonstandardisedoutcomescanbefoundinthesupplementaryExceldocument.

6.2 Dofinancialoutcomesdriveadultoutcomesorviceversa?Section5.2ofthemainreportprovidesadiscussiononwhetherfinancialoutcomesdriveotheradultoutcomesorviceversa.ThissectionoftheTechnicalAppendixprovidesthemotivationandadetailedexplanationofthemethodologyusedtotestthedirectionofthisrelationship.TheresultsofthesetestswereusedtoinformthediscussioninSection5.2ofthemainreport.

6.2.1MotivationfortestingforreversecausalityTheresearchoutlinedinSection6.1ofthisTechnicalAppendixanddiscussedinSection2.2.1ofthemainreporthasidentifiedanumberof statistically significant relationshipsbetween financialoutcomesandotheradultoutcomes. For instance, theresearchfindsthat:

n Pensionsavingatage34islinkedtoanumberofadultoutcomesatage34,namelyhealthself-assessmentmentalhealth,lifesatisfactionandstayingawayfromcrime;

n Lowdebt-to-incomeratioatageislinkedtoanumberofadultoutcomesatage42:healthself-assessment,long-standingillnessandlifesatisfaction;and,

n Financialself-assessmenthasastatisticallysignificantrelationshipwithalladultoutcomes,bothatage34and42.

However,financialoutcomesandadultoutcomesinthisanalysisareobservedsimultaneouslysincetheyaremeasuredatthe samewaves of the BCS70. Therefore, there are questions concerning direction inwhich the identified relationshipsbetweenthefinancialoutcomesandadultoutcomesmanifestthemselves.Forinstance:

n Isitpossiblethatthesamefactorswhichmakeapersonmorelikelytosaveforapensionhaveanimpactontheirhealthatthesameage?Orisitratherthatone’shealthmightimpacttheirabilitytosaveforapension?

n Doesindebtednessatage42leadtoalong-lastingillnessandpoorhealthself-assessmentatage42,orviceversa?

n Canweclaimthatlowerfinancialself-assessmentcauseslowerhealthself-assessment,orisitthatpoorhealthmightleadtohigherexpensesandthereforepoorerfinancialself-assessment?

6.2.2MethodologyfortestingthedirectionofrelationshipsbetweenfinancialandotheradultoutcomesThetestingwasperformedfortherelationshipsbetweenpensionsaving,debt-to-incomeratioandfinancialself-assessment,andthoseadultoutcomeswhichareavailableatbothage34and42andwherestatisticallysignificantrelationshipswerefound(seeSection2.2.1ofthemainreport).Weexploitedthepresenceofsomeoutcomes(healthself-assessment,absenceoflong-lasting illness,mentalhealthand lifesatisfaction)acrosssubsequentwavesoftheBCS70datasettoprobethedirectionoftheserelationships.

Forexample,inordertoprobetheestablishedrelationshipbetweenpensionsavingandhealthself-assessmentatage34,thefactthattheBCS70alsocontainsdataforhealthself-assessmentatage42wasusedtotestbothpossibledirectionsoftherelationship:

n Wetestedwhetherpensionsavingatage34 isadriverofhealthself-assessmentatage42whilstcontrolling for theimpactofthepre-existinghealthself-assessmentatage34(i.e.allowingforauto-correlationintheoutcomevariable).Theresulttellsuswhetherpensionsavinghasanimpactonfuturehealthself-assessmentinisolationfrompre-existinghealthself-assessmentandothercontrols.

n At the same time, the reverse hypothesiswas tested – that health self-assessment drives pension saving at age 34.However,itshouldbenotedthattheconclusionsfromthistestareweakerthantheconclusionsonthehypothesisthatpensionsavingdriveshealthself-assessment,becausepensionsavingdataisnotavailableatage42touseasanoutcome.

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Thesehypothesesweretestedusingatechniquecalled‘simultaneousequationsmodelling’, illustratedinthetechnicalboxbelow.20,21Theresultsfromsuchtestingallowustodrawamorecomplexpicturetobetterunderstandhowfinancialoutcomesandadultoutcomesinteractwitheachother.

Section2.2.2ofthemainreportprovidesadiscussionoftheresultsfromthesetests.ThemaincoefficientsofinterestfromthegeneralisedstructuralequationmodelsaresummarisedinamatrixforminTable17–Table21below.Therowscontainthepotentialdriversoftherelationship,andthecolumns–thepotentialoutcomes.

Forexample,Table17showsthathealthself-assessmentatage34hasastatisticallysignificantrelationshipwithregularsavingatage34.Moreover,regularsavingatage34hasastatisticallysignificantrelationshipwithhealthself-assessmentatage42aswell,evenaftercontrollingforpastlevelsofhealthself-assessment(atage34).Thisevidence,limitedasitmaybe,indicatesthattherelationshipbetweenregularsavingandhealthself-assessmentexistsinbothdirections.

Ontheotherhand,regularsavinghasastatisticallysignificantrelationshipwithmentalhealthatage34,butitdoesnotappeartohaveastronglinkwithmentalhealthatage42oncepastlevelsofmentalhealthareaccountedfor.Therefore,itismorelikelythatmentalhealthdrivesregularsavingratherthantheopposite.

Table17:Directionoftherelationshipbetweenregularsavingandotheradultoutcomes

Driver Regularsaving(age34)

Healthself-assessment(age42)

Lifesatisfaction(age42)

Mentalhealth(age42)

Regularsaving(age34) - 0.145** 0.228*** 0.001

Healthself-assessment(age34) 0.114*** 0.996*** -

Lifesatisfaction(age34) 0.102*** - 0.103*

Mentalhealth(age34) -0.041** 0.402***

Note:*=“Statisticalsignificanceat95%confidenceinterval”;**=“Statisticalsignificanceat99%confidenceinterval”;***=“Statisticalsignificanceat99.9%confidenceinterval”

Table18:Directionoftherelationshipbetweenpensionsavingandotheradultoutcomes

DriverPensionsaving(age34)



Mentalhealth(age42)

Absenceoflong-standingillness(age42)

Pensionsaving(age34) - 0.259*** 0.057 0.039 -0.085

Healthself-assessment(age34) 0.136*** 0.995*** -

Lifesatisfaction(age34) 0.054** - 0.230***

________________________________________________________________________________20Seee.g.Wooldridge,J.M.(2002)‘Econometricanalysisofcrosssectionandpaneldata’,TheMITPress.21Theexecutionofthisanalysiswasperformedusingthe‘sem’and‘gsem’commandsinStata.

Regressionanalysistotestthedirectionofrelationshipsbetweenfinancialoutcomesandotheradultoutcomes

Thehypothesis testingwas conductedusing ‘simultaneousequationsmodelling’. This frameworkallowsus to test theassumptionthatafinancialoutcomemightdriveanadultoutcome,butthatadultoutcomemightalsodrivethefinancialoutcome.Thisassumptionistestedbyestimatingasystemofequations,i.e.twoequationsatthesametime,oftheform:

9:;<=>?<>@?ABC = DEFGH:H@G:=?<>@?AB + IE:;<=>?<>@?ABCJK + LEM?H>N?=OC(1)

FGH:H@G:=?<>@?ABC = SE:;<=>?<>@?AB + TEFGH:H@G:=?<>@?ABCJK + UEM?H>N?=OC(2)

Notethatthedirectionofrelationshipstestingislimitedbythedataavailability.Ifeithertheadultoutcomeorthefinancialoutcome is not available at both ages 34 and 42, it is not possible to fully estimate equations (1) and (2). Either thecoefficientslabelledTorIcannotbeestimatedinthiscase.

43

Mentalhealth(age34) -0.048** 0.402***

Absenceoflong-standingillness(age34) -0.011 1.558***


Table19:Directionoftherelationshipbetweennetwealthandotheradultoutcomes

Driver Netwealth(age42) Healthself-assessment(age42)


Netwealth(age42) - 0.000*** 0.000**

Healthself-assessment(age34) 0.058 0.997***

Lifesatisfaction(age34) -0.041 0.237***


Table20:Directionoftherelationshipbetweenlowdebt-to-incomeandotheradultoutcomes

DriverLowdebt/incomeratio(age42)




Lowdebt/incomeratio(age42) - -0.232** -0.184** 0.223*

Healthself-assessment(age34) -0.151** 1.005***

Lifesatisfaction(age34) -0.048 0.249***

Absenceoflong-standingillness(age34) 0.186* 1.572***


Table21:Directionoftherelationshipbetweenfinancialself-assessmentandotheradultoutcomes

DriverFinancialself-assessment(age42)



Mentalhealth(age42)



rangebetween0.744-0.760***acrossallmodels

0.155*** 0.091*** 0.050* -0.095*

Healthself-assessment(age34) 0.093** 0.984***

Lifesatisfaction(age34) 0.022 0.217***

Mentalhealth(age34) 0.014 0.407***

Absenceoflong-standingillness(age34) -0.114 1.552


44

Annex1DetailsonBCS70variablesusedintheanalysis

Table22:ListofBCS70variablesusedintheanalysis

Variableaspresented BCS70codesofunderlyingvariables

Variabledescription

SkillsReadingability BD2RDAGE

Mother’sassessmentofchild’sreadingskill(i.e.whetherthechildcanreadletters,somewords,simplesentences)

Copydesignstestscore F199 Scoreonhowwellthechildcancopyasimpledesign(e.g.acircle)

Humanfiguredrawingtest F121 Scoreonhowwellthechildrepresentsdifferent

featuresindrawingsofhumanfigures

Profiledrawingtestscore F118

Scoreonhowwellthechildcancompletetheprofileofahumanface,scoredone.g.presenceandshapeofeyes,earsandnose

BritishAbilityScalesscore i3504-i3644

Testofgeneralintelligenceconsistingoftestsonworddefinitions,memory,similarityofwordsandpatternrecognition

Mathsscore BD3MATHS MathstestscoredevelopedspecificallyfortheBCS,knownastheFriendlyMathsTest.

Readingscore BD3READ TestScoreinEdinburghReading

Academicself-concept k036-k041Self-assessedabilityinmathematics,reading,spelling,creativewriting,artandcraftandtopic/projectwork.

Challenge c5d6-c5d13

Ameasurecapturinga‘strongdesiretogetahead’,e.g.whetheritmatterstohaveaninterestingjob,togetapromotion,andtohaveajobwithrealchallenge

Locusofcontrol K075-K094

Greaterinternallocusofcontrolmeansthattheindividualbelievestheycontroltheirownlife(ratherthaneventsoccurringduetoexternalfactorsoutsideoftheircontrol)

Self-esteem K010-K025 Self-esteemmeasuresachild’ssenseofself-worth

Self-controlj127,j129,j138,j139,j152,j155,j158,j174,j177

Self-controlmeasurestheabilitytoinhibitimpulsesandcontrolemotionalexpression

Socialskillsj122,j123,j124,j125;c5h27,c5h11,c5g16,c5h41

Teacher’sassessmentofhowthechildinteractswithpeers;thenumberoffriends;‘boldness’andcooperativeness

ReversedRutterbehaviouralscore22

BD2RUTT,BD3MRUTT,BD4RUTT

Ascorewhichiscalculatedbasedonparents’responsestoaseriesofquestions23onthechild’soverallbehaviour,ahigherscoreindicatingabetterbehaviour

________________________________________________________________________________22 For easeof reporting and consistencywithother skills, the scalehasbeen reversed so that ahigher score indicatesbetterbehaviour23 For ages 10 and 16, these underlying questions can also be used to construct personality traits, such as extraversion andemotionalhealth.Measureshavenotbeengeneratedatage5becauseitwasdeemedthatthewayinwhichthevariablesareconstructedwouldnotberepresentativeforbehaviourofa5yearold.

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Variabledescription

Agreeableness

m61,m46,m60,m56,m52,m45,m74;pa5_19,pa5_4,pa5_18,pa5_14,pa5_10,pa5_3,pa6_11

Thetendencytoactinacooperative,unselfishmanner

Goodconductscale

m45,m46,m52,m56,m60,m61;pa5_3,pa5_4,pa5_10,pa5_14,pa5_18,pa5_19

Whetherthechilddoesnotexhibitantisocialanduncooperativebehaviour

Conscientiousnessm57,m65,m76,m82;pa6_3,pa6_13,pa5_15,pa6_19

Thetendencytobeorganised,responsible,andhardworking

Emotionalhealth


Theextenttowhichthechildisrarelyworried,miserable,fearful,fussy,sullenortearful.

Extraversionm47,m48,m49,m58,m59;pa5_17,pa5_7,pa5_16,pa5_6,pa5_5

Basedonindicatorsincludingfondnessforlargegroups,popularitywithotherchildren,andleadership

Neuroticism


Emotionalinstabilityandpronenesstopsychologicaldistress

Financialoutcomes

Regularsaving B7SAVERG Whethersavingregularly

Pensionsaving bd7sav01-bd7sav15 Whethersavingforretirementorcontributingtoapension

Lowdebt-to-incomeratio

B9DEBT,B9NETA,B9NETP,B9SJUA,B9SJUP,B9PNETPY,B9PNETPD,B9EASE,B9INC

Whethertheperson’shouseholddebt(excludingmortgage)islessthanaquarteroftheirannualhouseholdincome24

Netwealth B9SAVT,B9DEBT Totalsavingsminustotaldebt(excludingmortgage)

Financialself-assessment b7finnow,B9FINNOW

Self-assessmentofanindividual’sfinancialsituation(i.e.‘findingitverydifficult’,‘findingitquitedifficult’,‘justaboutgettingby’,‘doingallright’and‘livingcomfortably’)

Intermediatelifeoutcomes

Educationalattainment BD7HNVQ,BD9HNVQ HighestattainedNVQlevel

Educationalpath BD9HANVQ,BD9HVNVQ Whetherhighestachievedqualificationisacademicorvocational

Employment bd7ecact,BD9ECACT Eitherinpaidemploymentorself-employed,vsnotemployed

Income b7cnetpy Individualannualpay

Homeowner b7ten2,B9TEN Ifaccommodationisownedoutrightoronmortgage

Maritalstatus bd7ms;BD9MS,BD9COHAB Married,inpartnershiporcohabiting

________________________________________________________________________________24Acut-offatlessthanaquarterofannualhouseholdincomewaschosenbecausethiscut-offprovidesthestrongestrelationwithothervariablesrelatedtoindebtedness,andprovidesthestrongestcorrelationwithchildhoodskills.

46


Variabledescription

Children bd7nchhh,bd7ochhh;BD9NUMCH

Ifanychildren,includingadoptedchildren,inthehousehold;andhowmany

Bereavementofaparentinchildhood

bd7maliv,bd7paliv;B9MADIED,B9PADIED

Whethertheparticipanthadlostaparentuptilltheageof16

Otheradultoutcomes

Healthself-assessment b7khlstt,B9HLTHGN Self-assessmentofhealthAbsenceoflong-standingillness b7lsiany,B9LOIL Reverseoflong-standingillnessorcondition

TotalMalaisescore BD7MAL,BD9MAL HigherMalaisescoreindicatessymptomsassociatedwithdepression

Mentalwell-being BD9WEMWB WarwickEdinburghMentalWell-BeingScaleSelf-assessedlifesatisfaction b7lifet1,B9LIFST1 Howwelltheindividualappraisestheirlife

sofar

Distancefromcrime b7polic3,b7polic4,b7polic5,b7court

Hasnotbeenofficiallywarned,cautionedorarrestedbythepolice,norhasbeenfoundguiltyoncourt

Feelingconfident B9SCQ31J Self-reportedlevelofconfidence

Optimism B9SCQ31A Self-reportedleveloffeelingoptimisticaboutthefutures

Note:FurtherdetailsontheBCS70variablescanbefoundfromtheBCS70documentationproducedbytheCentreforLongitudinalStudies,availablehere:http://www.cls.ioe.ac.uk/page.aspx?&sitesectionid=795&sitesectiontitle=Welcome+to+the+1970+British+Cohort+Study

47

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Formoreinformationaboutthisresearchpleasecontact:HelenPitmanSeniorInsightsManagerHelen.Pitman@moneyadviceservice.org.ukShadiGhezelayaghInsightsManagerShadi.Ghezelayagh@moneyadviceservice.org.uk

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the journey from childhood skills to adult financial …...the journey from childhood skills to...

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