Improving financial capability is a huge challenge but one that collectively it is possible to rise to. There is a need to counter deeply embedded social norms, which mean that many people are spending today, rather than saving for tomorrow, and to prove which initiatives can make a difference in improving financial capability.
There will always be external factors that impact on how people manage their money or indeed how much money they have, such as wider economic circumstances or changes to Government policy, over which the Strategy has no direct control. What the Strategy can and will do is build levels of financial capability to enable more people to navigate changes in their financial circumstances when they occur and help them to manage the money they do have.
The belief, and the consistent message from stakeholders, is that levels of financial capability must be improved from their current low levels. Life is getting more complex but if everybody works together it is possible to rise to the challenge. The Draft Strategy described a compelling case for raising financial capability and helping people to improve their lives. The changing financial environment will make financial capability ever more important.
The new Strategy builds on recent work by, and insights from, the likes of the Financial Inclusion Commission, the Archbishop of Canterbury’s Task Group, and the Tax Incentivised Savings Association (TISA)’s Savings & Investments Policy Project. The Chair of the Financial Inclusion Commission, Sir Sherard Cowper-Coles, and the Chair of the Archbishop’s Task Group, Sir Hector Sants, sit on the Financial Capability Board.
Money Advice Service research confirms that work to build financial capability needs to start at a very young age. By the age of seven many money attitudes are already set, but currently some ‘teachable’ moments are being missed. Parents are the key influencers on their children, but few are given the support they need to fulfil this role. Financial education is now on the curriculum across the UK, but only on the secondary curriculum in England. The education sector needs support to deliver high-quality financial education.
The Money Advice Service and Big Lottery Wales have launched a new pilot project which aims to motivate parents and carers and equip them with the confidence and ability to develop children’s positive money habits that will stay with them for the rest of their lives. Parents and carers will be encouraged to help their children develop skills such as self-control, perseverance, sensible attitudes to money and setting financial goals. The pilot has been implemented by nearly half of all local authorities in Wales and will reach as many as 1,000 parents and 1,600 children aged 3 to 11.
For many young adults, navigating the transition from education to the jobs market and independent living can be challenging. Poor financial decisions made at this time of life can have severe consequences, so there is a need for financial capability interventions to support young people at key points of transition.
As people move through their working lives they need to be able to build resilience to cope with financial shocks, such as redundancy, divorce, serious ill health or bereavement, and to plan ahead for life events such as buying a home, starting a family and retirement. People need to be able to budget, create a savings buffer and understand how to avoid financial difficulties.
For those approaching retirement the landscape has changed significantly in recent times and now raises a very particular set of financial capability issues. It does not end there – deteriorating physical health and cognitive decline in later life can present new challenges. At the same time there is the need to make complex financial decisions around planning and paying for care.
Low financial capability leaves a huge part of the population with limited financial resilience to deal with unexpected life events. Societal influences encourage spending now rather than saving for the future. Every day people are bombarded with marketing messages to spend and borrow. People may spend more than they can afford because they feel under pressure to match spending behaviours of friends and family. Social norms tend to prompt poor financial choices as people are primarily concerned with hiding financial problems by continuing to spend. Low income can exacerbate all these issues, but we also know that people on low incomes can budget extremely effectively and many can and do save.
The impact of financial difficulties on health can be significant – more than half those accessing debt advice funded by the Money Advice Service have mental health issues.
The Draft Strategy published by the Money Advice Service in 2014 recognised the importance of shifting social norms to improving financial capability, but equally recognised this would be a complex and long-term endeavour. The consultation responses strongly supported this view. The Strategy proposes some first steps in taking this forward, building on the growing body of evidence on the application of behavioural economics and psychology to shifting norms, attitudes and motivations.
Recent and impending changes in the financial environment are increasing the importance of individuals being able to manage their money well. For example, the introduction of pension freedoms and Universal Credit demand greater engagement with, and understanding of, money management. Overall more responsibility for financial decisions is shifting to the individual. How successfully people adapt to this change will be affected not only by their skills and knowledge, and their attitudes and motivations, but also by their access to appropriate financial products, services and information. People need help to make the choices that are right for them, and to understand the consequences of the choices they are making.
Inevitably, over the life of the Strategy there will be further political and economic changes that affect the way people manage money day to day, and how they make critical financial decisions about their future.
Since the Money Advice Service published the Financial Capability Strategy for the UK, the Government has announced a decision to create a new, as yet unnamed, single financial guidance body that will subsume much of the work of the Money Advice Service, the Pensions Advisory Service and PensionWise. Legislation is before Parliament to decide not only the name but the remit and resources that will be allocated to the new body.