The UK has a historic problem with relatively #FinCap. Research has shown that:
When asked, more than one in five people (22%) could not read the balance on a bank statement.
27 million people don't have a sufficient savings buffer to allow them to cope with a significant income shock.
#FinCap
Those with low financial capability are far more likely to struggle to make decisions or avoid decisions completely.
The impacts of low financial capability are clear...
Impacts of low capability: The average user on a dual-fuel energy tariff could save £160 a year by switching provider #FinCap
Impacts of low capability: Consumers are collectively losing out on £4.3 billion a year by keeping savings in savings accounts with very low rates of interest. #FinCap
But those with low capability don't necessarily need to make financial decisions on their own... #FinCap
We don't make financial decisions on our own - family units make decisions together and the majority of individuals with relatively low capability live in a household where a family member has average or high capability. In practice, this means that decisions are often shared and family members discuss decisions with each other.
"[I make more decisions] than my partner. I'm not great at it but I like to control it…I’m not that great financially on making decisions but I feel like I’m better than my partner. But we help each other out a lot."
In general, it seems that family ties and social networks could provide an important role in tackling low levels of financial capability. #FinCap
However, a
major barrier using social networks to boost capability is the extent to which people in the UK are willing to discuss personal finances... #FinCap
A recent study highlight in The Independent shows the extent of this aversion to discussing finances
"After surveying 15,000 men and women, researchers from University College London found that people are seven times more likely to tell a stranger how many sexual partners they've had, whether they've had an affair, and whether they've ever contracted a sexually-transmitted disease than have a chat about their income"
Davies Boren, Z., (2015). 'Talking about money is Britain's last taboo: Britons would rather talk about sex than money.' The Independent, 19th September 2015. #FinCap
Research from the Social Market Foundation also shows that:
- Less than half of those with low capability are comfortable talking to their family or friends about finances.
- Over a third of those with low capability would actively avoid it.
#FinCap
So what can be done...?
Improving #FinCap: Make it less boring
"People don't like talking about finances and things like that. It’s almost a bit, not grown up but it’s too serious and important, stuff like that…[that means people just think] I’m not interested, just carry on, get enough money, spend it and use it."
Improving #FinCap: Make it more relevant
"...make people realise how much they really could save, because I think I'm quite sceptical actually of how much I really could save if I added everything together, all the utilities, bills and insurances, how much could we save if we did shop around...if someone said to me you could save £700 a year I think I would be sitting here thinking I'm going to do this..."
Improving #FinCap: Take away the embarrassment
"…make it acceptable that people can feel comfortable talking about these things and that it's not something that you've got to be ashamed of because when you start talking to people you find out that most of us are all in the same boat."
Policy prescriptions
Recommendations on #FinCap from new @smfthinktank report:
Make it less boring: introduce an Active Consumer Week. Get the nation talking with a range of activities to engage individuals and households and help each other to save more and navigate markets to a better deal
Make it relevant: introduce measures that allow consumers to more easily make comparisons. Including the next steps of the MiData project for current and savings accounts and the open API standard.
Make it less embarrassing: give households tailored communications that show what the average family like them might spend (on different utilities and essentials) and how much they should be putting away in savings; give them tools to compare their own spending and saving; and information about how they can switch to a better deal or increase their savings.
See the full report here: http://www.smf.co.uk/publications/fixing-family-finances-taking-a-household-view-to-improving-financial-capability-in-great-britain/
Or contact matthew@smf.co.uk
