- Context
- The study
- Key findings
- Points to consider
Context
The Money Advice Service wanted to further understanding about the influence of factors in childhood and adolescence on future financial capability and related financial outcomes. The aim was to understand those outcomes better and to contribute to wider understanding of such links and implications for social policy and effective interventions.
The study
The study is based on an analysis of the 1970 British Cohort Study (BCS70), a longitudinal survey of 17,000 people born in one week in April 1970. The data reviewed are those from 1975, 1980, 1986, 2004 and 2014, covering childhood, adolescence and adulthood and allowing a focus on earlier influences and later outcomes. A separate literature review helped to determine factors and outcomes most likely to be of interest, although it found little evidence about financial capability. The study uses ‘cognitive skills’ to refer to harder (more measurable) skills associated with learning and problem-solving, ‘non-cognitive skills’ for softer characteristics (such as self-perception and locus of control), and ‘behavioural characteristics’ for observable behaviours.
Key findings
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Childhood skills can predict adult financial outcomes:
- The strongest overall links with childhood skills are pension saving at 34 and financial self-assessment at 34 and 42.
- Cognitive skills at the age of 5 could predict pension saving at 34.
- Those relationships were stronger and wider at 10, while links related to non-cognitive skills had emerged.
- Behavioural characteristics at 16 predicted some adult outcomes.
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Some skills seem to drive the results:
- Reading and maths scores have the strongest influence on predictive cognitive skills at 10.
- Self-control and locus of control are the non-cognitive skills with the greatest effect on adult financial outcomes.
- Extraversion and agreeableness at 16 were the behavioural characteristics with the strongest links – the former to pension saving at 34 and financial self-assessment at 42 and the latter to a lower debt-to-income ratio at 42.
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Intermediate outcomes can help to explain the wider journey:
- Educational attainment and employment status seemed were related to longer-term outcomes.
- Marital status and income had a weaker relationship.
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Some pathways can help prevent adverse outcomes:
- Educational attainment and employment can help prevent adverse outcomes for children of all cognitive skill levels.
- A high level in one skill may compensate for a low level in another.
- Qualifications, academic education, employment and having a skilled occupation can compensate for lower non-cognitive skills.
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Some demographic factors are influential:
- Among other relationships, South Asian ethnicity was related to regular saving at 34 and net wealth at 42, but negatively related to low debt-to-income ratio at 42.
- Fathers’ education level predicted regular and pension saving at 34 and financial self-assessment at 34 and 42.
- Cognitive skills had a stronger relationship – and non-cognitive skills a weaker relationship – with saving and financial self-assessment for females than males.
- Those growing up in a household with three or more children at 10 were less likely to save or to feel that they were managing finances well at 34.
- Those living in Scotland at 10 were more likely to be saving for a pension at 34; the opposite was true for those from Wales. Regular saving and financial self-assessment at 34 were also higher for those living in Scotland at 10.
- Those living in rented social housing at 10 were less likely to save regularly as adults or to view their financial situation positively at 34. But they also display a stronger link between cognitive skills and regular saving than other groups.
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Adult financial outcomes are related to other outcomes:
- Adult financial outcomes are positively related to various other outcomes, including health self-assessment, life satisfaction and mental health.
- There is evidence that some of these relationships may work both ways, but in others one of the outcomes appears to drive the other.
Points to consider
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Methodological limitations:
- Full explanations and confidence levels are available in the associated technical report.
- Longitudinal cohort studies are by their nature most representative of those who match the criteria – in this case being born in April 1970. Differing contexts may make relationships different for those born at different times.
- Some of the measures used were not directly comparable in different waves, and there was a smaller sample of respondents at the age of 16.
- The survey did not include Northern Ireland after the first wave.
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Relevance:
- Findings are relevant to considering types and points of intervention relating to improving financial capability, and particularly to further study of the drivers of adult outcomes.
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Generalisability/ transferability:
- See the second point under Methodological Limitations.
Full report
Journey from childhood skills to adult financial capability - full report
