Finance Education: What Works? - open.ac.uk · PUFin-MAS project. #PUFin @OUBSchool @TruePotential_...
Transcript of Finance Education: What Works? - open.ac.uk · PUFin-MAS project. #PUFin @OUBSchool @TruePotential_...
#PUFin @OUBSchool @TruePotential_ #FinCap17
True Potential PUFin Annual Conference
Church House Conference Centre
Tuesday 14 November 2017
Finance Education: What Works?
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WELCOME AND HOUSEKEEPING
Nigel Cassidy
Financial Journalist
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INTRODUCTION
Professor Janette Rutterford
Research Professor, True Potential PUFin,
The Open University Business School
The Money Advice Service
The journey from childhood skills to adult financial capability
Dr Gavan Conlon (London Economics)
Kirsty Bowman-Vaughan (Money Advice Service)
Tuesday 14th November 2017
The Money Advice ServiceThe Money Advice Service
1. Background
The journey from childhood skills to adult financial capability
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The Money Advice Service
Project OverviewKey Aims
• To understand the relationship between CYP skills and adult financial outcomes
• To understand the relationship between adult financial outcomes and other adult outcomes
The journey from childhood skills to adult financial capability
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The Money Advice Service
1970 British Cohort Study
• Covers 17,000 individuals born in England, Scotland and Wales in a single week of 1970
• Has tracked the same individuals over the last 47 years
• Contains information on health, physical, educational, social development, economic & labour market circumstances & other characteristics at different ages
• Previous research has found links between CYP skills and adult employment outcomes
The 1970 British Cohort Study does not cover today’s CYP
– in fact, some of them are parents of today’s CYP –
but provides a unique opportunity to explore the links between CYP skills and adult outcomes
The journey from childhood skills to adult financial capability
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The Money Advice Service
Key indicators in BCS70
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Cognitive skills
General intelligence tests
Literacy/reading
Numeracy
O Level performance
CYP skills (ages 5, 10, 16)
Behaviour
Agreeableness
Conscientiousness
Emotional health
Extraversion
Good conduct
Neuroticism
Non-cognitive skills
Academic self-concept
Challenge
Locus of control
Self-esteem
Self-control
Social skills
Unless stated otherwise, the analysis controls for childhood personal and socioeconomic characteristics (gender, ethnicity, household size, parents’ education & employment status, social class & family income, child rearing attitudes)
Financial outcomes
Regular saving
Pension saving
Debt/income ratio
Financial self-assessment
Adulthood (ages 34, 42)
The journey from childhood skills to adult financial capability
The Money Advice ServiceThe Money Advice Service
2. Findings
The journey from childhood skills to adult financial capability
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The Money Advice Service
CYP skills & financial outcomes
The journey from childhood skills to adult financial capability
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The Money Advice Service
1970 British Cohort Study
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Skill measureRegular saving
(age 34)Pension saving
(age 34)
Low debt-to-income ratio
(age 42)
Financial self-assessment
(age 42)
Age 5
Cognitive ability
Non-cognitive ability - - - - - - - - - - - - - - - - - - - - - - - Not captured - - - - - - - - - - - - - - - - - - - - - - -
Behavioural score
Age 10
Cognitive ability
Non-cognitive ability
Behavioural score
Age 16
Cognitive ability
Non-cognitive ability
Behavioural score
The journey from childhood skills to adult financial capability
The Money Advice Service
Role of intermediate outcomes
The journey from childhood skills to adult financial capability
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Intermediate outcomes
Educationalattainment
Employment status
Income
Marital status
Home ownership
The Money Advice Service
Financial and other adult outcomes
The journey from childhood skills to adult financial capability
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Other adultoutcomes
Health self-assessment
Mental health
Absence of long-standing
illness
Life satisfaction
The Money Advice Service
Pension saving
The journey from childhood skills to adult financial capability
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The Money Advice Service
Financial self assessment
The journey from childhood skills to adult financial capability
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The Money Advice ServiceThe Money Advice Service
3. Implications
The journey from childhood skills to adult financial capability
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The Money Advice Service
The journey from childhood skills to adult financial
capability17
Key Aims
• Starting young matters
• It’s more than just cognitive skills
• Money doesn’t exist in isolation
• Improved targeting
• Improved content?
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Martin Upton
Director, True Potential PUFin,
The Open University Business School
Getting school-leavers ready for financial independence
(New course: Managing My Money for Young Adults)
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Building on the trilogy of free personal finance courses
Over 300,000 registrations
Now..Managing My Money for Young Adults
Kindly supported by the Chartered Accountants’ Livery Company Charity
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The clear need for help
- Our research - youngsters in debt
- FCA - young adults struggling with money
- StepChange - under 25s in growing trouble with debt
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Course covers timeline from 16 years
- Financial products- Budgeting at home and away from home- Financing higher education
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Course covers timeline from 16 years
- Living in a shared rental- Being smart in the market place- Borrowing sensibly- Planning for the future
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Three-year programme
- Course production- Launch and roll-out - Individual and classroom delivery- Assess effectiveness
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Here’s the coursehttp://www.open.edu/openlearn/money-business/managing-my-money-young-adults/content-section-overview
..and here’s the budgeting web-appwww.managingmybudget.com
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The mission to educate will continue….
- Bespoke courses targeting specific social groups- Financial education at the point of transacting
- And learning from our testing of ‘what works’
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Jeanette Makings
Close Brothers Asset Management
SESSION 1 DISCUSSANT
Head of Financial Education Services,
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Facilitator: Nigel CassidyDr Gavan Conlon
PANEL DISCUSSION AND Q&A
Kirsty Bowman-VaughanMartin Upton
Jeanette Makings
Jonquil Lowe
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Will Brambley
Research Associate, True Potential PUFin,
The Open University Business School
Financial capability for Just About Managing (JAMs): results of
PUFin-MAS project
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Adults who most need financial education don’t look for it• Prevention is better than cure: it’s much easier to prevent financial difficulties than get
out of them
• Finance is boring: people don’t look for help until something triggers them to engage,
usually a negative shock putting them into difficulty
• Fin Ed appeals to the financially capable: those interested enough to seek it out already
doing ok
• Reaching those who most need help tends to require expensive and intensive
interventions
Stylised Fact #1
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Resilience is vital but most people are Just About Managing
• 80% do not have recommended 3 months’ income saved to weather redundancy or
illness
• 35-50% aren’t saving anything
• 25% have negative financial wealth & could withstand no shock
• £1000 in household savings would stop half of all problem debt from occurring –
500,000 per year
Stylised Fact #2
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The problem is more psychology than knowledge
• If you ask people what proportion of their income they should save for a rainy
day, what’s the most common answer?
– 10%
• Most people know ‘the right thing’ to do
• Most people don’t do what they think is ‘the right thing’
Stylised Fact #3
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Can behavioural insights help us design more effective
financial education?
• Use information to nudge people to action more than to inform
• Design it for people with no interest in finance, not for the authors
– Make it positive, short & immediately relevant
– Focus on resilience – make the need for & benefits of it real
– Make it easy to do ‘the right thing’ – small, manageable actions; remove
barriers (mental & physical)
– Proactively take it to people, don’t make them look for it
• Test if it works!
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Has it worked?
• To soon to tell conclusively – small sample with before & after data
• Those who take it seem to increase use of budgeting & reduce missed/bounced
payments significantly, with moderate increase in regular savings
• Bigger impact on behaviour & smaller impact on confidence than previous
research on original Managing My Money course – matching the changed focus
of the tool
BUT
• Very few engage without personal contact
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Can we nudge people to act before they hit difficulty?
Yes, if we can get them to engage
• Behaviourally-informed techniques seem to work for those who do engage
– We can nudge people to act if we can get a tool to them
• A preliminary theme from this & other What Works Fund projects: no clear link between better tools & more
people using them
– Not “build it and they will come”
• Need to test more behavioural techniques to get people to use it:
– Follow-ups & more intensive communication
– Personal & social links: word of mouth & social media
– Do we need the “incessant & intrusive” style of notifications apps often employ to get us to use them?
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Helen White
Head of Financial Capability, Money Advice Service
Putting it into context: the financial capability strategy for the UK
BUILDING A FINANCIALLY RESILIENT AND FINANCIALLY SECURE POPULATION
The True Potential PUFin Conference, 14th November 2017
Mick McAteer, The Financial Inclusion Centre, www.inclusioncentre.org.uk
The Financial Inclusion
CentreFinancial services that work
for society, not the few
CONTENTS
• Why building financial resilience and financial security is one of the most important public policy challenges facing UK
• The causes of financial exclusion and underprovision – and why it is likely to get worse, not better
• What can we do about it – including a realistic assessment of role of financial capability and fintech
FINANCIAL RESILIENCE AND FINANCIAL SECURITY ROADMAP
The journey to financial resilience and longer term financial security
Stage Financial vulnerability/
insecurity
‘Square one’ Financial resilience Financial security
Definition Consumers in a ‘negative’
position, vulnerable and
exposed to shocks/ detriment
Consumers back to a ‘neutral’
position-still vulnerable but with
platform to build on
Ability to withstand financial
shocks/meet short term
financial needs
Sufficient means to meet
medium-long term financial
needs
Main factors Restricted access to
transactional bank account
Overindebted/ vulnerable to
subprime lending/trapped in
vicious cycle
No savings
Exposed to risk, no/little
insurance cover
No pension/ underpensioned
Housing problems,
mortgage/rent arrears
Low/unstable incomes, poverty
Poverty ‘premium’/ paying more
for basic goods and services
Effective budgeting/’making ends
meet’ (if possible- as may be outside
control)
In the financial system (functional
bank account)
Paid off unmanageable/
unproductive debt
Still underinsured/ underpensioned
Income surplus
Effective use of banking system
Emergency savings (3 mths
income)
Access to fair, affordable credit
Basic insurance cover
Some form of ‘safety net’
Beginnings of pension
provision/but still
underprovided for
Proper insurance cover, not just
for contents but income
replacement
Paying off/paid mortgage
Significant pension provision
Long term savings/ asset
accumulation
Debt/assets lifecycle model
positive territory
HOW FAR BACK ARE WE STARTING?
• 71% of households received unexpected bill last year (£200-£400) –
• 51% of ‘struggling’ households were able to use savings/ not have to cut back; but 42% had to cut back/ borrow/ couldn’t pay; 7% couldn’t recall (MAS)
• 11.6m (23% of adults) ‘struggling’ (struggle to keep up with bills, find it hard to build up savings buffer);
• 12.7m (25% of adults) ‘squeezed’ (significant financial commitments, little provision for income shocks) (MAS)
HOW FAR BACK ARE WE STARTING?
• 8 million overindebted (debt is a heavy burden, missed bills/ credit commitments in 3 of last 6 months) (MAS)
• Lower income households pay a ‘poverty premium’ of £490 a year (JRF)
• Some signs of deleveraging but unsecured credit appears to be growing again, now £200bn, low base rates conceals problems
HOW FAR BACK ARE WE STARTING?
• Credit card margins=17.7% (10.9% 5 years pre crisis), Overdraft margins=19.5% (11.6% 5 yrs pre crisis), ‘high risk’ borrowers paying up to 50% for credit cards, unauthorised O/Ds higher APRs than payday loans (Financial Inclusion Centre)
• Have to confront fact that much debt may not be ‘repaid’, 5.1m credit card a/cs will take 10 years to pay off debts (assuming no further borrowing) (FCA)
HOW FAR BACK ARE WE STARTING?
• Savings ratio falling again, 1/2 households < £1,500
• Savings ratios (10 yr avg) -‘Anglo-Saxon’ countries: 0.2%; Continental Social Model (CSM): 8% (Euro area: 8.8%); ‘Family-centric’: 3.1% (Financial Inclusion Centre)
• Half of lower income households don’t have home contents insurance, compared to 1 in 5 of households on average incomes (Financial Inclusion Commission)
HOW FAR BACK ARE WE STARTING?
• Only 1 in 10 households have income/mortgage protection insurance (CII)
• Worrying levels of pension underprovision in key groups eg self-employed – 16% contributing (17% men/ 12% women), UK private pensions coverage heavily skewed towards 1st/ 2nd income deciles (FRS)
• Net wealth of UK households tripled since 1995, increase of £7trn,three-quarters(£5trn) accounted for by housing stock – huge intergenerational transfer of wealth (ONS)
HOW FAR BACK ARE WE STARTING?
• In 1990s, low/medium income household took 3 years to save for FTB deposit, now 20 years; in private rental sector, proportion of income spent on housing was 10%, now 36% (Resolution Foundation)
• Millions of UK households long way from financially resilience and financial security
CAUSES OF FINANCIAL EXCLUSIONAND UNDERPROVISION - SOCIOECONOMIC
• Cause of financial exclusion and underprovision complex, but three broad categories – socio-economic, supply side and demand side (inc consumer confidence and financial capability)
• Appalling performance on wage growth, average real wages -5% 2007-15, 2nd worse in OECD after Greece, 103/112 globally, biggest squeeze in earnings since Napoleonic times
• Growth in zero hours/ temporary work, self-employment – less predictable earnings
CAUSES OF FINANCIAL EXCLUSIONAND UNDERPROVISION - SOCIOECONOMIC
• Housing market changes, wealth inequalities
• Major regional differences in GVA, incomes post crisis – in most regions GVA per head and disposable incomes still not recovered
• Overindebtedness/ low savings ratio
CAUSES OF FINANCIAL EXCLUSIONAND UNDERPROVISION - SOCIOECONOMIC
• No real sign of improvement eg. earnings squeeze set to continue until 2022, expected to still be £22 a week (in real terms) below pre-crisis levels
• Welfare reforms have/ will have huge impact on lower/medium income households
• If we get Brexit wrong, the impacts will be even more severe
CAUSES OF FINANCIAL EXCLUSION AND UNDERPROVISION – SUPPLY SIDE
• Sad fact is financial services industry (esp savings/ investment) little direct relevance for millions of households
• Many households are not economically viable for commercial financial services providers – to be precise, cannot sell products on terms which make sense for the industry and consumers
• Bigger question to confront: is it possible to make decent profits fairly from lower income households?
CAUSES OF FINANCIAL EXCLUSION AND UNDERPROVISION – SUPPLY SIDE
• This will be more difficult in the new economic and financial reality – low rates, low returns, low costs are critical
• Became too easy to borrow, too hard to save
• Regulation has not created exclusion, it has exposed the true cost of doing business fairly, demands no more than would be expected of a well run business
CAUSES OF FINANCIAL EXCLUSION AND UNDERPROVISION – SUPPLY SIDE
• Fintech/ Big Data will improve economics for some consumer groups but will also exacerbate financial exclusion for greater numbers (segmentation associated with greater exclusion, easier to identify lower risk/ more profitable consumers)
• Culture gap emerging between experienced professionals who run firms and younger, more impatient innovators who develop fintech (source of misselling)
CAUSES OF FINANCIAL EXCLUSIONAND UNDERPROVISION – DEMAND SIDE
• Clear majority of consumers in recent survey have little/ no confidence that CEOs/ NEDs of financial services firms
– Put customers’ interests first
– Intend to treat them fairly
– Encourage ethical behaviour in the firm they run (see Annex for details of 3R Insights survey)
CAUSES OF FINANCIAL EXCLUSIONAND UNDERPROVISION – DEMAND SIDE
• Financial capability involves consumers having the: awareness of need to act; propensity to act; confidence to engage; capacity to make effective plans, decisions and choices, and act; and diligence to monitor and review plans
• But evidence shows that encouragement/financial capability interventions limited impact on changing demand side behaviours (that’s why needed AE/NEST)
CAUSES OF FINANCIAL EXCLUSIONAND UNDERPROVISION – DEMAND SIDE
• Commercial advice sector/ providers (which play critical role in persuading consumers to change behaviours) unable to serve large parts of the market (see previous slide)
• Pensions ‘freedom and choice’ will reverse progress made through AE/ NEST – AE filling the ‘pool’ of retirement savings, freedom and choice drains that pool of savings, pushes up cost of saving, exposes consumers to even greater risks
WHAT CAN WE DO ABOUT IT?
• No question, face huge challenges if we want to build financially resilient and secure households
• Need to address each of the major causes – socio-economic, supply side, demand side
• Economic policy outside scope of this speech but clearly government could do much:
– ease impact of welfare cuts
– reform pensions tax relief use savings to boost pensions of low income/ self-employed
– increase AE contribution rates
WHAT CAN WE DO ABOUT IT?
• Supply side reforms must include:
– FCA driving through efficiency gains in asset management (37% operating margins, 2nd highest after real estate)
– default decumulation option
– change balance of regulation to make it more difficult to borrow, easier to save
WHAT CAN WE DO ABOUT IT?
• On demand side, fintech will help some consumers, fincapps could help guide consumers into better decisions and choices, but of limited benefit, we have analogue regulation for digital finance world
• The new single financial guidance body has to work this time, there is no other realistic option for consumers who are not viable for commercial providers
CONSUMERS’ VIEWS ON FINANCIAL LEADERS (CEOs/ DIRECTORS)To what extent do they care about providing value for money?
All 18-34 >55Reasonable/
great extent
%
Little/ poor
extent
%
Reasonable/
great extent
%
Little/ poor
extent
%
Reasonable/
great extent
%
Little/ poor
extent
%
Insurers 17 70 21 60 15 76
Banks 18 70 26 57 15 78
Investment
Firms 22 63 26 53 20 68
CONSUMERS’ VIEWS ON FINANCIAL LEADERS (CEOs/ DIRECTORS)To what extent do they care about quality of service?
All 18-34 >55
Reasonable/
great extent %
Little/ poor
extent
%
Reasonable/
great extent %
Little/ poor
extent
%
Reasonable/
great extent %
Little/ poor
extent
%
Insurers 26 62 29 51 25 68
Banks 30 59 37 44 26 67
Investment
Firms 28 57 34 45 28 61
CONSUMERS’ VIEWS ON FINANCIAL LEADERS (CEOs/ DIRECTORS)Confidence that will put customers’ interests first
All 18-34 >55Some/
complete
confidence %
Little/ no
confidence %
Some/
complete
confidence %
Little/ no
confidence %
Some/
complete
confidence %
Little/ no
confidence %
Insurers 21 69 23 60 22 72
Banks 22 68 29 54 21 74
Investment
Firms 21 68 24 57 20 70
CONSUMERS’ VIEWS ON FINANCIAL LEADERS (CEOs/ DIRECTORS)Confidence that will treat customers fairly
All 18-34 >55Some/
complete
confidence %
Little/ no
confidence %
Some/
complete
confidence %
Little/ no
confidence %
Some/
complete
confidence %
Little/ no
confidence %
Insurers 24 66 28 57 24 70
Banks 28 63 34 52 27 67
Investment
Firms 25 62 29 53 24 66
CONSUMERS’ VIEWS ON FINANCIAL LEADERS (CEOs/ DIRECTORS)Extent to which ethical behaviour is encouraged
Overall 18-34 >55
Reasonable/
great extent %
Little/ poor
extent
%
Reasonable/
great extent
%
Little/ poor
extent
%
Reasonable/
great extent
%
Little/ poor
extent
%
Insurers 24 58 31 48 20 64
Banks 25 58 34 46 20 65
Investment
Firms 24 56 31 46 20 62
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Facilitator: Nigel Cassidy
Will Brambley
PANEL DISCUSSION AND Q&A
Helen WhiteMick McAteer
OVERVIEW
• What is “Technology in finance”?
• Why do we care?
• How are True Potential making a difference?
TECHNOLOGY IN FINANCE
• Anything that empowers clients to make better decisions
or improves their outcomes.
THE SAVINGS GAP• Over 50% of UK workers have a poor understanding of
savings.
• 1 in 5 have less than a months worth of expenses saved.
• On average, people waste £143 per month they later
regret.
AUTO ENROLMENT• 22 year old
Pot: ~£309,000, approximately £15,450 income per
annum.
• 30 year old
Pot: ~£191,000, or approximately £9,600 income per
annum.
• 40 year old
Pot: ~£100,000, or approximately £5,000 income per
annum.
All of these are below the £23,000 needed to live
comfortably in retirement.
TECHNOLOGY: MAKING UP THE DIFFERENCE
• Lower the barriers to entry
• Help clients determine where they are
• Help clients determine where they want to be
• Do it on autopilot
£1
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Liz Moody
The Open University Business School
SESSION 3 DISCUSSANT
Senior Lecturer, Executive Education
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Facilitator: Nigel CassidyDr Jamie Godwin
PANEL DISCUSSION AND Q&A
Liz Moody
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CLOSING COMMENTS
Professor Janette Rutterford
Research Professor, True Potential PUFin,
The Open University Business School