Financial capability: are we focusing on the wrong sort of behaviour change?

Screen Shot 2018-10-29 at 16.23.07 copyIdeas 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 on the Vista Leading the Agenda webpage or the Money Advice Service Evidence Hub.

The research originally intended to answer the question:

Is support around money management more effective when delivered within the wider context of older people’s lives than solely focusing on money knowledge and skills? 

We ran into some methodological and practical issues in relation to recruitment of participants, and despite reaching some of the most socially and economically excluded people in the country, in particular older Asian women living in the most deprived wards in Leicester, MAS asked us to stop the project before we had completed the evaluation, although we did have 163 survey responses and had run two focus groups from which the results below come.  The issues and implications around the practicalities of running evaluations in the VCS will be covered in a blog post to follow shortly.  In the meantime this post focuses on one of the key issues to emerge from the project.

Does financial capability training and support lead to financial behaviour change?

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.”

What does this mean for practice?

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:

  • Running whole-family workshops, or workshops around financial capability that were targeted at how to talk to family about money perhaps depending on how good people’s relationships with their families are?
  • For the woman who was worried about cultural traditions and upsetting her husband, support needs to be focused around how she addresses this first.
  • For the man who feels he has to spend money or his life is not worth living, behaviour change could address how he could feel as though he could make his life worth living through activities that are low or no cost, or how improving his mental and emotional health might be key to reducing spending.

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.

Call to action

What can be done?  None of this is rocket science, many organisations are already doing this, but there may be opportunities for further partnerships:

  • For advice agencies getting out into the community to deliver advice in conjunction with other organisations.  This will also help with the need that many participants expressed to have support on an ongoing basis rather than as a short term intervention.
  • For community organisations inviting advice services into your organisations and looking at joint funding bids.
  • For funders and commissioners – recognise the important role that advice plays in communities, but also that this will be a revolving door or have reduced impact without addressing the broader issues that people face.
  • For all, consider how your practice captures the range of factors that people might use when financial decision making and equip your staff with the knowledge and skills for effective behaviour change.

[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

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