Measuring financial capability: identifying the building blocks

1. Context
2. The study
3. Key findings
4. Points to consider

• Context
• The study
• Key findings
• Points to consider
• Full report

Context

The Money Advice Service (MAS)’s UK Financial Capability Strategy (see fincap.org.uk) sets out a conceptual model of factors affecting financial capability. In order to strengthen and refine the evidence base MAS conducted an Adult Financial Capability Survey in 2015. This report summarises analysis of findings relating to fundamental components of financial capability and relationships between them.

The study

The Adult Financial Capability Survey was conducted in 2015 and involved 3,461 online and face-to-face surveys of a representative sample of the UK population, boosted by interviews in the devolved nations and 18-24-year-olds. In order to test and refine the existing model, this analysis involved allocation of survey results to the MAS’s existing theoretical framework and statistical analysis to derive the principal components of financial capability and relationships between them; the findings will also inform future iterations of the Adult Financial Capability Survey. A full technical report is available here. This report also highlights implications for existing interventions.

Key findings

• Broad dimensions used to understand financial capability:
  • Financial wellbeing measures (what people would like to achieve in their lives)
  • Financially capable behaviours (which are the focus of many interventions)
  • Financial behaviours and inhibitors (such as skills, knowledge and attitudes)
  • Demographics and other characteristics that may affect financial circumstances and attitudes.
• Drivers of current financial wellbeing:
  • Demographics have the largest effect (35%), but interventions can do little to affect this (apart from targeting specific group), so interventions need to focus on behaviours or enablers and inhibitors, which account for 25 and 33% of variation respectively.
  • The most influential dimensions are managing credit use, active saving, financial confidence and financial engagement.
• Drivers of longer-term financial security:
  • Again, demographics have the largest effect, accounting for over 44% of variation.
  • Building resilience is far and away the strongest dimension, accounting for over 50%. This includes total savings and working towards goals, and so highlights the importance of developing savings behaviours.
• Where to focus interventions:
  • Overall, the population scores more highly for current than future financial capability. Active saving and building resilience help to improve both of these.
  • Confidence is an important general issue, and notably for younger people, private sector tenants and people from black and minority ethnic groups.
  • Building financial resilience through saving is a particular challenge for the unemployed, renters and people on low incomes.
  • The study reports a slight but consistent gender inequality, suggesting a potential need for building financial numeracy and confidence among women.

Points to consider

• Methodological limitations:
  • The technical report contains full methodological detail (including reliability) for all figures; the large sample was representative of the UK population.
  • The report notes that findings and tendencies would be re-checked and expanded through future survey, but it highlighted strong tendencies that are unlikely to change quickly.
• Relevance:
  • The report and the wider survey are relevant to the development of the UK Financial Capability Strategy.

Full report

Measuring financial capability: identifying the building blocks - full report