Just as in most other advanced economies, in the UK the complexities of the financial system, changes in social attitudes and a retail-led culture have all outpaced the ability of consumers to develop individual money management skills.
According to the OECD/INFE 2016 Survey of Adult Financial Literacy competencies, adults in the UK score almost exactly in line with the average of 30 countries when benchmarked to an internationally agreed set of questions. This puts the UK 15th in the ranking against the 29 other countries that took part in the survey, just above Thailand and Albania; below the average for OECD countries; and well below France, Norway and Austria.
The Money Advice Service surveyed nearly 6,000 adults living in the UK for the 2018 Adult Financial Capability Survey. From the answers to more than 100 questions, we identified the key components of financial capability and the relationships between them. We highlighted the differences between managing money now and planning for the future, and identified the barriers or enablers for achieving better financial wellbeing. These include key attitudes such as confidence and a sense of control over what happens to your money, as well as economic factors such as income and home ownership. We also identified some of the key changes since the 2015 Adult Financial Capability Survey.
Overall, UK adults had much higher levels of current financial wellbeing (with a mean average score of 6.8 out of a possible 10) than longer-term financial security (scoring 4.7 on average). This most likely reflects that current financial wellbeing is easier to achieve. People scored most poorly on the planning ahead for life events behaviours. Adults in the UK scored much better as a whole at the day-to-day behaviours. Among the enablers and inhibitors, the variation in average scores was more muted.
The 2015 Financial Capability Survey of the UK gave a detailed probe into the issue by surveying more than 5,000 adults and asking them detailed questions about what they have, what they know, what they understand – as well as questions that captured their attitudes to money. This snapshot was repeated in 2018.
The 2015 survey concluded that the average score of an adult with regard to managing money well day-to-day was 59%, with subgroups scoring as low as 41%. But for planning ahead, the average score was 40%, dipping as low as 18% for one subgroup. The average score for dealing with financial difficulties was a more positive 90% on average. Within these aggregated averages, the survey revealed some very striking gaps in knowledge and skill – for example, 22% of respondents could not read a bank statement.
In 2016, a financial capability survey of children, young people and their parents was conducted. This will be repeated in 2019. The survey found that, overall, children have a reasonable grounding in knowledge and understanding about money. They recognise some financial products and concepts and know money has a value. They are cautious about debt, and have a theoretical understanding of the importance of savings and the concept of value for money.
However, it also found that 39% of 16- to 17-year-olds don’t have a current account, and 60% don’t have a savings account. Children who never save are least likely to be confident in managing their money (only 28% of those who never save say they are confident compared to 63% of those who save very regularly).
Better financial capability leads to many better individual and social outcomes. These have not yet been comprehensively quantified, but an economic study by the Money Advice Service published in 2016 suggested that people across the UK could be better off by around £108 billion over the next 30 years if they were a better able to manage their money. This was a theoretical model in that it calculated the size of the prize but was explicitly not linked to individual policies that would drive specific financial capability outcomes.
However, it is suggestive of the size of the gain, and therefore the size of the challenge, that low levels of financial capability in the UK present to policy makers, financial services and social support organisations.