30. Developing Financial Capability in the UK Sue Lewis Head of ...


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30. Developing Financial Capability in the UK Sue Lewis Head of ...

  1. 1. Developing Financial Capability in the UK Sue Lewis Head of Savings and Investments UK Treasury NCC Conference, Perth 5-6 March 2008
  2. 2. Improving financial capability – who does what (1) <ul><li>Financial Services Authority – FSMA 2000 </li></ul><ul><ul><li>Regulates industry </li></ul></ul><ul><ul><li>Statutory objective to “raise levels of consumer awareness in the financial system” </li></ul></ul><ul><ul><li>Leads national strategy for financial capability </li></ul></ul><ul><li>Office of Fair trading </li></ul><ul><ul><li>Regulates consumer credit </li></ul></ul><ul><ul><li>Consumer helpline – Consumer Direct </li></ul></ul><ul><ul><li>Campaigns – ‘Save Xmas’ </li></ul></ul>
  3. 3. Improving financial capability – who does what (2) <ul><li>Government </li></ul><ul><li>Sets long term goals </li></ul><ul><li>‘ Mainstreams’ financial capability into existing programmes, including education </li></ul><ul><li>Financial inclusion – access to banking, affordable credit, debt advice </li></ul><ul><li>Financial services firms and voluntary sector </li></ul><ul><li>Run projects in local communities </li></ul>
  4. 4. Defining financial capability <ul><li>Making ends meet – budgeting </li></ul><ul><li>Keeping track – knowing what is in the bank, paying bills on time </li></ul><ul><li>Planning ahead – understanding risk, preparing for life events </li></ul><ul><li>Choosing products – understanding terminology, asking questions, comparing products </li></ul><ul><li>Staying informed – knowing where to get help, reading financial pages </li></ul><ul><li>Source: Financial Services Authority: Levels of financial capability in the UK: results of a baseline survey, March 2006 </li></ul>
  5. 5. Drivers for change <ul><li>Low levels of capability across UK </li></ul><ul><li>Lack of access to advice </li></ul><ul><li>Product choice and complexity </li></ul><ul><li>Young people – growing up in a complex world </li></ul><ul><li>Planning for retirement </li></ul>
  6. 6. Low levels of financial capability <ul><li>From FSA baseline survey: </li></ul><ul><li>37% who thought their pension would not be enough had make no extra provision </li></ul><ul><li>70% had made no provision for a drop in income </li></ul><ul><li>21% searched for a ‘best buy’ </li></ul><ul><li>37% savers and 50% credit card holders considered price </li></ul><ul><li>40% with equity ISA were not aware value fluctuates with stock market performance </li></ul><ul><li>9% people renting home had buildings insurance </li></ul>
  7. 7. Access to advice <ul><li>From FSA baseline survey: </li></ul><ul><ul><li>2 in 5 bought on product information or advice of friends or family </li></ul></ul><ul><ul><li>1 in 5 took no advice at all </li></ul></ul><ul><ul><li>1 in 6 bought their most complex product without considering any other options </li></ul></ul><ul><ul><li>Only 1 in 5 shopped around or sought professional advice </li></ul></ul><ul><li>Advice ‘gap’ </li></ul>
  8. 8. Drivers for change – product choice and complexity <ul><li>8,500 different mortgage products </li></ul><ul><li>4,000 savings accounts </li></ul><ul><li>2,000 retail investment funds </li></ul><ul><li>Growth in complex insurance products, eg </li></ul><ul><ul><li>Payment protection </li></ul></ul><ul><ul><li>Critical illness </li></ul></ul><ul><li>Comparison can be difficult, compounded by jargon </li></ul>
  9. 9. Young people <ul><li>Financial responsibility starts younger </li></ul><ul><ul><li>Student loans </li></ul></ul><ul><ul><li>Access to credit </li></ul></ul><ul><ul><li>Living independently </li></ul></ul><ul><ul><li>From 2018: Child Trust Fund </li></ul></ul>
  10. 10. Planning retirement
  11. 11. Planning retirement <ul><li>Decline of defined benefit schemes shifts risk to individuals </li></ul><ul><ul><li>Complexity, uncertainty, lack of trust in industry </li></ul></ul><ul><li>Personal Accounts </li></ul><ul><ul><li>Additional 8-10 million pension savers by 2012 </li></ul></ul>
  12. 12. Consequences <ul><li>People do not buy a product when they should – savings, investments, protection </li></ul><ul><li>People buy the wrong product </li></ul><ul><li>People rely too much on credit and may end up with unmanageable debt </li></ul><ul><li>Little competitive pressure on financial services industry </li></ul><ul><li>Need for expensive consumer protection regulation </li></ul>
  13. 13. Financial capability – the vision <ul><li>“ Better informed, educated and more confident citizens, able to take greater responsibility for their financial affairs and play a more active role in the market for financial services” </li></ul>
  14. 14. FSA National Strategy <ul><li>Learning Money Matters </li></ul><ul><ul><li>Delivered through Personal Finance Education Group </li></ul></ul><ul><ul><li>Target 4,000 schools </li></ul></ul><ul><li>Money Doctors </li></ul><ul><ul><li>Toolkit for student money advisers – covers 50 HE institutions </li></ul></ul><ul><li>Young people not in education, employment or training </li></ul><ul><ul><li>Target to train 20,000 youth workers by 2010 </li></ul></ul>
  15. 15. FSA National Strategy (2) <ul><li>Make the Most of your Money </li></ul><ul><ul><li>Seminars, booklets, online guidance </li></ul></ul><ul><ul><li>1.3 million employees covered </li></ul></ul><ul><li>Parents’ Guide to Money </li></ul><ul><ul><li>Booklet/CD, delivered through health workers </li></ul></ul><ul><ul><li>In pilot 2/3 took some action </li></ul></ul><ul><li>Online tools </li></ul><ul><ul><li>www. moneymadeclear . fsa . gov . uk ; </li></ul></ul><ul><ul><li>www. whataboutmoney .info (for 18-24s, from April 2008) </li></ul></ul>
  16. 16. The UK Government’s long-term approach to financial capability <ul><li>In the long term, aim to ensure that: </li></ul><ul><li>All adults in the UK have access to high quality generic financial advice to help them engage with their financial affairs and make effective decisions about their money </li></ul><ul><li>All children and young people have access to a planned and coherent programme of personal finance education, so that they leave school with the skills and confidence to manage their money well </li></ul><ul><li>A range of Government programmes is focussed on improving financial capability, particularly to help those most vulnerable to the consequences of poor financial decisions. </li></ul><ul><li>Published January 2007. </li></ul>
  17. 17. Schools <ul><li>Financial life skills in the curriculum </li></ul><ul><li>Financial capability taught as part of GCSE maths </li></ul><ul><li>11.5m additional support, including for teaching about Child Trust Fund in primary schools </li></ul><ul><li>HMRC developing materials on tax and benefits </li></ul>
  18. 18. Government programmes <ul><li>Embedded in delivery targets </li></ul><ul><ul><li>Adult basic skills </li></ul></ul><ul><ul><li>Information strategy for pensions reform </li></ul></ul><ul><ul><li>Financial inclusion </li></ul></ul><ul><ul><li>Children’s centres </li></ul></ul><ul><ul><li>Services to support families at risk </li></ul></ul><ul><li>Government will publish action plan May 2008 </li></ul>
  19. 19. Generic financial advice – Thoresen review <ul><li>Terms of reference </li></ul><ul><li>“ To determine a range of models for achieving greater access to generic financial advice on a national scale, taking account of future developments in financial services markets and, in particular, personal accounts” </li></ul>
  20. 20. Thoresen Review - approach <ul><li>High level cost-benefit analysis </li></ul><ul><li>Consumer focus groups </li></ul><ul><li>Industry workshops </li></ul><ul><li>Assessment of ‘target group’ </li></ul><ul><li>Mapping of existing infrastructure </li></ul><ul><li>Service prototypes </li></ul><ul><li>Source: Thoresen review of generic financial advice: Final report. March 2008 </li></ul>
  21. 21. Defining generic financial advice <ul><li>Or ‘Money Guidance’ </li></ul><ul><li>Provides information and guidance on a range of topics, from savings to ‘jargon busting’ </li></ul><ul><li>Guides the user to the point where they have a small number of options, and understand the consequences of choosing between them </li></ul><ul><li>Signposts to specialist services as appropriate </li></ul><ul><li>Does NOT make recommendations to buy, surrender or change a specific product from a specific provider </li></ul>
  22. 22. Who is it for? <ul><li>Everyone at some point in their lives – new baby, divorce, retirement </li></ul><ul><li>7m vulnerable consumers – low income, multiple deprivation factors </li></ul><ul><ul><li>Budgeting, where to save money, benefits, for many debt advice </li></ul></ul><ul><li>12m low to middle income, struggle with unexpected </li></ul><ul><ul><li>Saving, protection </li></ul></ul>
  23. 23. Pilots <ul><li>Consumer Direct/CAB </li></ul><ul><ul><li>Phone/F2F, using existing brands + moneymoneymadeclear </li></ul></ul><ul><li>A4e </li></ul><ul><ul><li>Phone/F2F using ‘money fitness’ brand + moneymadeclear </li></ul></ul><ul><li>12 weeks </li></ul><ul><li>75% users said they would be ‘likely’ or ‘very likely’ to use the service </li></ul><ul><li>8 out of 10 took action </li></ul>
  24. 24. User perspectives <ul><li>‘ I thought there must be somebody, somewhere who looks after the little consumers’ [male, 40s, phone] </li></ul><ul><li>‘ When they explained all the things that they did…I was like, where have you people been hiding’ [male, 20s, F2F] </li></ul><ul><li>‘ This seems on a level where somebody who is not particularly interested could get the information they require’ [male, 30s, web/phone] </li></ul>
  25. 25. User perspectives <ul><li>‘ If you know there’s somewhere where you’re quite at liberty to go and ask a silly question….then you’re not wasting their time’ [female, 60s, phone] </li></ul><ul><li>‘ Much more of a service as opposed to selling something to you’ [male, 30s, phone/F2F] </li></ul><ul><li>‘ Being able to speak to someone over the phone and her signposting me to other organisations was exactly what I wanted’ [female, 20s, web/phone] </li></ul>
  26. 26. Thoresen conclusions <ul><li>Service is needed and wanted </li></ul><ul><li>It can be delivered outside regulatory boundary </li></ul><ul><li>‘ Partnership’ approach </li></ul><ul><li>Mixture of channels – keep an eye on emerging technologies </li></ul><ul><li>Key principles: “On my side”; Supportive; Preventative; Universal; “Sales free” </li></ul><ul><li>Must lead to action </li></ul>
  27. 27. Costs <ul><li>Channel mix 45% internet, 35% phone, 20% F2F </li></ul><ul><li>4 million users a year </li></ul><ul><li>40-50m GBP a year </li></ul>
  28. 28. Benefits <ul><li>All NPV over 60 years, GBP </li></ul><ul><li>Consumers >15bn </li></ul><ul><li>Industry 3.6-5.5 bn </li></ul><ul><li>Eg bad debt reduction, lower sales costs, higher demand, reduced regulatory costs, enhanced reputation </li></ul><ul><li>Government 4.6-6 bn </li></ul><ul><li>Eg reduced pensioner support, increased tax receipts </li></ul>
  29. 29. Next steps - pathfinder <ul><li>Two year pilot, costing £12 million, to test the service ‘end to end’ </li></ul><ul><li>Develop measures of success </li></ul><ul><li>Design brand, refine marketing </li></ul><ul><li>Develop measures of quality </li></ul><ul><li>Training and accreditation </li></ul>
  30. 30. Some conclusions <ul><li>Financial capability needs to be someone’s job </li></ul><ul><li>Build in, not bolt on </li></ul><ul><li>Money guidance – the missing link? </li></ul>
  31. 31. Further information <ul><li>FSA national strategy: www. fsa . gov . uk </li></ul><ul><li>Government’s long term approach: </li></ul><ul><li>www. hm -treasury. gov . uk </li></ul><ul><li>Any questions: sue. lewis @ hm -treasury. gsi . gov . uk </li></ul>