Evaluation Scotland Wales

Developing simple, broad principles like ‘five a day’ that most people can use to think about their money

Developing financial rules of thumb: MAS responds to the Financial Advice Market Review

Friday 2 August 2019

What was FAMR?

The Financial Advice Market Review (FAMR) was launched jointly by HM Treasury and the Financial Conduct Authority (FCA) in 2015 to identify ways to make the UK’s financial advice market work better for consumers.

One of the recommendations in FAMR’s final report in 2016 was to set up a task force to design and test a set of ‘rules of thumb’.

What is a financial rule of thumb?

A rule of thumb is a simple, broad principle that most people can use in thinking about their personal finances. For example: “eat five portions of fruit and vegetables a day”.

The Treasury and FCA set up the Financial Advice Working Group (FAWG) to design and test some financial ‘rules of thumb’. The FAWG proposed the ‘Financial Five’:

  1. Clean up your finances regularly
  2. Manage your borrowing, don’t let your borrowing manage you
  3. Save when you can – even a little helps a lot
  4. Pile into your pension – it’s your future income
  5. Other people get help to make the most of their money, so can you.

It recommended the Money Advice Service (MAS) should further test and refine these, potentially replacing the fifth with a rule around managing unexpected life events.

What did MAS do to develop financial rules of thumb?

Review the evidence

MAS commissioned an evidence review on rules of thumb, how they have been used, and what can be learned from previous attempts to design and disseminate them. It found that rules of thumb can improve decision-making; however, financial rules of thumb have had varied success. It also highlighted that trust in the messengers strongly influences their adoption and use.

Research the financial behaviours of young adults

MAS then commissioned research with young adults 18-25 about their money management behaviours and attitudes, and rules of thumb which they would find useful. This found one in five young adults said they were not confident in managing their money, and young adults wanted to know more about credit in particular. The research identified five key principles for communicating money management tips to young adults:

  • Make it achievable
  • Include a call to action
  • Empower, don’t reprimand
  • Shorter is not always better – don’t trivialise or over-simplify, and
  • Include more detail for university-leavers.

Develop a rule of thumb for life events

Following the FAWG’s recommendation, MAS also commissioned research to explore a financial rule of thumb to help people adjust to unexpected life events. The research focused on UK adults who had recently experienced a sudden income drop due to a relationship breakdown, job loss or illness/injury and aimed to identify a rule of thumb that would help them adjust.

The research and a co-development workshop with experts led to proposals which were then tested with consumers for memorability, understandability, practicality and relevance. The testing showed the best variant to be ‘the Four Cs rule’:

  • Check what’s coming in and going out
  • Consider what you really need to buy and pay for
  • Change to cheaper alternatives, and
  • Care for yourself. Don’t forget to breathe, sleep on big decisions and practise self-care.

The research also reiterated the evidence review finding that messengers matter: to increase credibility the rule should come from people they trust who have also been through an income drop as a result of a life event.

Develop a rule of thumb for young adults and credit

Finally, MAS commissioned PwC to undertake research with adults aged 24-34 to understand what they wished they’d known when they started using credit, to develop proposals for rules of thumb to help young adults use and manage credit effectively.

The research and a co-development workshop with industry experts led to proposed rules of thumb, which were then tested with consumers aged 18-24 for clarity, memorability and practicality. Testing indicated the best variant to be:

If you wouldn’t want to buy it with cash, don’t buy it with credit.

As with the life events rule of thumb, the research highlighted that the rule of thumb would need to be supported by close collaboration between partners across sectors to support successful adoption by young adults.

Where next for financial rules of thumb?

This programme of work provides a foundation for developing, testing further, and ultimately applying financial rules of thumb in messages to consumers across the sector to guide action and support improved money management. If financial rules of thumb are to be successfully embedded across the financial ecosystem and within public consciousness like the ‘five a day’ rule, a wide array of actors and agencies will need to be involved, including government, industry and the social/voluntary sector, with a coordinated approach to dissemination.