Measuring financial capability

1. The study
2. Key points
3. Conclusions
4. Points to consider

• The study
• Key points
• Conclusions
• Points to consider
• Full report

The study

In 2015-16, Citizens Advice developed a financial capability framework for its own advice work, but wanted to ensure that the output aligned with the Money Advice Service UK Financial Capability Strategy. The process involved background research (literature review, service map and research on measures), development of the framework (including theory of change and draft measures), testing and refining the framework, and carrying out further evidence-gathering to test and validate the measures. This summary focuses on the May 2015 literature review, which is available within the wider report and was based on a rapid evidence assessment, primarily of UK-based reports from the preceding ten years.

Key points

• Advice and financial capabilty:
  • The draft UK Financial Strategy (2008) highlighted the value of advice in building financial capability and meeting the needs of particular groups, moving away from an earlier focus on supporting people in financial crisis.
  • It also recommended joint working between the advice sector and others, including housing associations, financial services, creditors and public services to build financial capability services and evidence about good practice.
• Evaluating financial capability:
  • The developing UK Financial Capability Strategy Framework (2015) identified five domains for measuring financial capability: knowledge, skills, attitudes, motivation and opportunity.
  • The MAS Evidence Hub supported supported building the evidence base. It uses standards of evidence, with the highest level being randomised control studies with sound methodological approaches and statistically significant results. There is also a scale of effectiveness, ranging from consistently effective interventions, through those with uncertain effectiveness, to those found to be ineffective.
  • Citizens Advice had earlier developed an approach that measured financial capability across six outcomes indicators.
  • Toynbee Hall developed a definition of financial capability (2013), made up of confidence and motivation, knowledge and skills and behaviours.
• Impact of financial capability on wellbeing and health:
  • Improving people’s financial capability has a more of a positive impact on psychological wellbeing than does increased household income.
  • It also builds resilience to challenging life events.
  • Lower levels of or falls in financial wellbeing are related to lower income, adverse life events and such behaviours as impulse buying, not dealing with debts or saving and not budgeting.
• How to improve financial capability:
  • There was some evidence of the value of personalised approaches in engaging tenants in training and of more intensive programmes, compulsory attendance and follow-up in ensuring effective training of offenders.
  • The MAS Evidence Hub included one consistently effective intervention - American State Mandated Youth Financial Education.
  • 14 interventions were judged to be effective, but only three of these were based in the UK.
  • Behavioural science insights emphasise the relative importance of psychology in financial capability. The Behavioual Science Insights Team’s EAST model (2014) sets out four simple approaches to influencing people’s behaviour.
  • MAS has also increasingly focused on the importance of attitudes, mindset and behavioural economics, while Transact (2013) recommended changes to how financial providers market services.

Conclusions

• Financial capability is a comparatively new concept in the UK so evidence about effective practice was to date limited.
• There was a clear need for more robust and longitudinal studies of effectiveness, and for more of these studies to meet higher standards of evidence. Citizens Advice was in a unique position to provide such evidence across a range of interventions.
• Improved financial confidence has a significant impact on health and wellbeing; this would be a valuable area of Citizens Advice to evaluate.

Points to consider

• Methodological limitations:
  • The review was intended as an overview of existing evidence rather than to be exhaustive. It focused on the developing content of the MAS Evidence Hub.
• Relevance:
  • The findings and the approach are of direct relevance to an understanding of the potential role of advice services in building financial capability.
  • The review also demonstrates a method of developing sector-specific frameworks that are nevertheless aligned with the Financial Capability Framework.

Full report

Measuring financial capability - full report