Based on previous research, the Money Advice Service understood people’s childhood experiences to have a profound effect on how they manage their money into adulthood. Research has also shown that some children and young adults face additional barriers to accessing appropriate financial products and developing the financial knowledge, skills and attitudes needed to manage money successfully into and throughout adulthood. Particular characteristics and the contexts in which children and young people live may mean that they have additional financial capability needs, which would benefit from targeted support. However, at the time of this review, vulnerability in the context of children and young people’s financial capability had not been widely explored or defined.
This 2018 review seeks to establish what evidence exists about which children and young adults are most vulnerable to developing poor levels of financial capability, and/or face disproportionately large and negative impacts of poor financial decisions.
The review took place between December 2016 and February 2017. Numerous methods and resources were considered to help find the most relevant research concerning the financial capability of vulnerable groups of children and young adults. These included:
- Major academic databases;
- Electronic journals;
- Websites of relevant organisations;
- Peer reviewed publications;
- Working papers;
- Conference papers;
- Reports and grey literature.
Searches were performed using broad search terms relating to vulnerability, risk, financial capability, and children and young people, and then repeated on specific groups or categories that were identified by previous interviews with stakeholders.
Following the searches, 44 articles were selected for inclusion in the final review. The articles were scored for quality using a recognised framework for mixed studies reviews.
Definitions of vulnerability
- There is no consistent definition of vulnerability, meaning that there are different views and perceived boundaries when assessing those who are most vulnerable.
- This is not necessarily problematic, with some research suggesting that fixing a definition of vulnerability may restrict how we categorise and understand people, perhaps underestimating their capabilities and almost disempowering them by placing them in a rigid framework of vulnerability.
- It is important to recognise that people may transition in and out of periods of vulnerability, and that it is not a static concept but a state that results from an interplay of numerous complex factors, meaning characteristics that make one person vulnerable do not necessarily mean another with similar characteristics will be.
- MAS’s working definition, based on research to date, is “a vulnerable child / young person in the context of financial capability is… at higher risk of poor financial capability and making poor financial decisions, and/or living in particular circumstances, or with conditions, that may put them at increased risk of disproportionately large or negative impacts of poor decisions.”
Limited research on vulnerability and financial capability
- The review found that there was very little literature on vulnerability in relation to children and young people’s financial capability.
- The authors suggest that this could be because seeing financial capability as a combination of skills, knowledge, mindset and connection is still a relatively new idea.
Findings on characteristics and contexts impacting financial capability
- The research pinpointed a number of studies that suggested characteristics and contexts that may be linked to financial capability outcomes.
- There were mixed findings relating to gender and financial outcomes, with generally lower literacy levels for females but higher levels of debt among young males.
- No direct research was found on the financial capability of children living with multiple or complex needs, though it did show families living with children with complex needs were more likely to experience financial difficulties.
- The literature showed that most financial ‘socialisation’ in families is implicit rather than explicit, and that financial socialisation may be more successful when parents display warmth and are heavily involved with their children.
- Socio-economic status and income appear to impact financial capability and outcomes in a range of ways, often negatively. However, there is evidence that children growing up in low-income homes understand more about budgeting.
- Having a savings account as a child appears to be associated with better financial outcomes in later life.
- The literature suggests that poor educational attainment and lower cognitive ability relate to poorer financial literacy and financial outcomes.
- Leaving home early appears to be a key risk factor for future financial outcomes.
- There is limited research that suggests care leavers experience particularly poor financial outcomes.
- Little is known about the impacts of living in an over-indebted home on children and young people’s financial capability, though one report suggests a number of negative outcomes and experiences that may be associated with living in a home facing problem debt.
Future research recommendations
- More longitudinal research to understand how different vulnerabilities relate to financial capability as children and young people grow up.
- More exploration of specific groups – such as why females have poorer financial literacy but lower levels of debt.
- Exploring the unique financial capability needs experienced by children and young adults with particular characteristics, such as learning/health difficulties, those from different ethnic backgrounds, and those who are homeless.
Points to consider
- This report is relevant to all stakeholders and policymakers with an interest in designing and implementing interventions aimed at improving financial capability among vulnerable children and young people.
- The research should be relevant throughout the UK, though there may be some implications that are less pertinent in certain regions and social contexts.