How can we help older people make the most of their money?
This review considers the financial capability needs of older people in retirement, and principles for delivering services that may help to meet those needs.
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What do we know about older people’s financial capability?
The UK population is getting older, and those in retirement face unique economic challenges. They typically display higher levels of confidence, good money management skills and behaviours; but, with potential ill-health and cognitive decline, their financial literacy and access to support will decline with age. Further, the increasing digitisation of services threatens to leave older people who lack digital skills behind.
Older people face complex financial choices throughout retirement, but with ill health, cognitive decline and poor digital skills, both their financial literacy and access to support decline with age.
This is a troubling situation, as throughout retirement it remains necessary for older people to interact with financial services, and many have to navigate complex financial products and choices, such as equity release and managing the costs of long-term care. Furthermore, at this stage in life, income and assets are usually fixed so older people often cannot earn more money to deal with unexpected costs.
What affects older people’s financial capability?
There are several factors that influence older people’s financial capability and long term financial security:
Many older people are digitally-excluded, especially those over 75, on lower incomes, and female. Being online can help people access information and guidance and get better deals by shopping around. It also provides a channel to monitor banking and make payments from home and therefore may allow people to retain an element of control of their money in situations they would otherwise be reliant on trusting others.
Older people aren’t planning for long-term care or how they would manage their finances if they were to suffer ill health. Currently fewer than one in ten older people have a specific plan in place for how they will pay for long term care. Without plans in place, older people may have fewer choices and poorer outcomes later in life.
Older people are less likely to talk about money. While those living as a couple can turn to their partner, those living alone are much less likely to discuss their finances with anyone. This particularly affects women aged 55-74 living alone and men who live alone. This therefore appears to be due to opportunity rather than any attitudinal barriers.
Older people are acutely at risk of being scammed. As many as half of older people over 65 believe they have been targeted by scammers. Whilst anyone can become a victim of scams, older people are particularly vulnerable because they are perceived as having more money and, with pension freedoms, they will have access to pension savings as cash. Personal circumstances (e.g. cognitive decline, social isolation and bereavement) may also place them at greater risk.
More can be done to assist poorer pensioners to maximise their income and make most of their money day to day. Approximately 1.3 million older people in Great Britain who are eligible for pension credit are not taking up their entitlement. Research shows that attitudinal as well as awareness barriers prevent older people claiming. While 80% of older people think shopping around is important, they are much less likely to switch utilities or financial products than people of working age.
How can we improve older people’s financial capability?
Interventions working with older people in retirement typically focus on the following areas: maximising income, safeguarding from fraud, planning for care and bereavement, mortgages, and equity release.
However, the evaluation evidence about what works to improve financial capability for older people in retirement is extremely limited: few evaluations use robust methods to measure outcomes and understand causality, instead focusing on satisfaction and reach. As such, it is difficult to make firm, evidence-based recommendations about how to improve the effectiveness of financial capability interventions for older people.
There are some indications that the following principles could be effective, although all of these require further testing.
Ensuring financial capability interventions are targeted. While, in general, older people can benefit from holistic advice (as suggested by the Age UK ‘Planning for Later Life’ programme), there is evidence that financial capability interventions have a stronger quantifiable impact if they address specific issues, which include:
Targeting debt advice to those who need it. Although older people on the whole show good financial resilience, where debt does exist it can be particularly problematic given older peoples’ fixed and lower income in retirement. The few older people who are still paying down their mortgages, for example, tend to be ‘struggling’ during the earlier years of retirement (aged 55-64). Therefore, whilst there is no need for widespread debt advice for older people, there is an acute need for targeted debt advice among certain groups.
Supporting women over 75, and on low incomes to make the best financial decisions. This group tends to have lower levels of financial skills and knowledge and may benefit most from assistance.
Coordinating services and building in participation. Evidence from other sectors suggests that interventions are more successful when they are delivered as part of a coordinated effort from all the relevant agencies and stakeholders, from charities to local authorities and product providers. Similarly, evidence from other sectors is clear that interventions can be more effective when they involve the people they aim to benefit in their design and delivery: in this case older people themselves.
Where should further research focus?
- We need to develop much stronger evidence around the types of interventions that result in positive financial capability and wellbeing outcomes for older people and understand how / why these interventions are effective, for whom and under what circumstances?
- We believe that digital inclusion (skills, confidence and access) will improve older people’s financial capability, but we need to better understand this link. We also need to investigate the role that families and trusted friends can play in empowering older people to transact online.
- We need to better understand the mindset, skills and other barriers that prevent older people from planning ahead. We expect that if we can encourage more older people to plan ahead this will have a positive impact on wellbeing outcomes and reduce the risk of financial abuse in later life but this assumption needs to be tested.
- More research is needed to understand why older people become victims of scams and financial abuse and what can be done safeguard them – by equipping older people, and their families, to recognise and deal with scammers and financial abuse, and by stopping abuse in the first place.
- Finally, we should explore whether older people who need it are accessing debt advice, whether there are barriers that are particular to this group and what can be done to address these.
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If you are planning or delivering an intervention for older people in retirement and you want help to evaluate, please contact us. You can also visit our Evaluation Toolkit for guidance and tools.