Ideas to Impact working in partnership with Vista , CALS and the WEA undertook an evaluation of workshops for older people funded through the Money Advice Service What Works? programme. The full report is downloadable from the Money Advice Service Evidence Hub.
The research originally intended to answer the question:
A report commissioned by MAS, Financial capability and wellbeing [1] states, “behavioural economists report that most individuals do not behave rationally and predictably, when it comes to spending money. Even though an individual may be financially literate, this same individual may behave in an irrational financial manner”. The paper Financial Literacy, Financial Education and Downstream Financial Behaviors [2] describes a meta-analysis of financial capability interventions and concluded, “Our meta-analysis revealed that financial education interventions studied explained only about 0.1% of the variance in the financial behaviours studied, with even weaker average effects of interventions directed at low-income rather than general population samples”.
Much of the existing literature around financial effectiveness and behaviour change talks as if it were a given that people’s financial goals are paramount in their decision making, as opposed to people deciding not to act in their financial best interests because something else is more important to them. Behaviour change techniques such as goal setting, regulation, social pressure, and rewards are suggested, but no number of techniques focused around financial capability are going to be effective if it’s focusing on the wrong behaviour.
Some of the reasons that people in our project gave for less than logical financial behaviour included:
“My health is bad, if I don’t spend money on myself now my life is not worth living.”
“I don’t want to cause difficulties in the family by asking my husband about money.”
“If I save for the future I won’t have much money now, and I still can’t save enough to make a difference in the future anyway, so I might as well enjoy it now instead of being poor now and poor in the future.”
“I find keeping track of money stressful and I don’t want to do something that causes me stress.”
“I do not use savings accounts because they are not Islamic.”
“I know direct debits are cheaper but putting money into a meter I know what I’m spending.”
“I stay with British Gas because I know they’re a good company.”
The statements above are all logical decisions in some way, it’s difficult to fault any of them, and yet we may still believe that there is a need to change financial behaviour. This means and there is a need to look broader than financial capability knowledge and skills to change them, for example:
Of course, this will be no surprise to the agencies who are at the sharp end of supporting people day in and day out. After all, money advice did used to be called debt counselling, and advice agencies supported people across a wider range of issues than “just” advice. To some degree the change towards a more focused financial capability intervention and away from the broader issues was caused by a positive effort to stop advice being given by people who were well meaning but legally-challenged, for example with the development of the Community Legal Service Quality Mark, which I was involved in developing on behalf of the advice sector with the now defunct Legal Services Commission (the Quality Mark is now the Advice Quality Standard ). On the other hand, commissioning of advice services has become more restrictive and it is often difficult to find grant funding for advice, so it has also divorced many advice services from being able to take a more holistic approach.
None of this is rocket science, many organisations are already doing this, but there may be opportunities for further partnerships:
[1] Money Advice Service (2015) Financial Literacy, Financial Education and Downstream Financial Behaviors , available from https://mascdn.azureedge.net/cms/financial-capability-and-wellbeing.pdf
[2] Fernandes et al (2013) Financial Literacy, Financial Education and Downstream Financial Behaviors , available from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2333898