THE UK’s NATIONAL STRATEGY ON FINANCIAL CAPABILITY

NOVEMBER 2007

Shaun Mundy (shaunmundy@hotmail.com)

Former Head of Financial Capability Department, Financial Services Authority, UK

FSA statutory objectives

• Secure an appropriate degree of protection for consumers

• Promote public understanding of the financial system

Key Aims of Strategy:

• Consumers who individually- are financially capable- are able to take responsibility for their own actionsConsumers who, as a group, can influence the market

Steering Group: senior representatives from broad range of partners

National Financial Capability Survey

• Rigorous large-scale study in 2005, to set a baseline against

which can measure progress

•Over 5,300 in-depth interviews

•Representative of the UK population

•Covering people’s understanding, attitudes and

behaviour

• Will repeat every 4 to 5 years

• In March 2006, FSA published results of survey together with

action plan to improve current levels of financial capability

Main themes emerging from the survey

People are increasingly being asked to make provision for their future............ but many are not equipped to do so

Many people are failing to plan ahead adequately for retirement or an unexpected drop in income

Unless action is taken, the UKpopulation will store up problemsfor the future

Only a small proportion of people have debt problems. But, given the failure to plan ahead, many more could be tipped into over-indebtedness

People do not take adequatesteps to choose products thatmeet their needs

The under-40s are less capable,on average, than their elders

Many people could be tipped intofinancial difficulties by a smallchange in their circumstances

Many people are notshopping around for good deals and are taking on risks of whichthey are unaware

The greatest demands are placedon those least equipped to deal withthem (particularly the under-40s)

Improving Financial Capability will significantly benefit individuals

Individuals experience greater financial well-being

Understanding financial issues

Making the right financial choices

Reviewing and setting spending patterns which are in line with income

Taking on the right kind of debt when appropriate and having plans to get out of debt

Setting appropriate aspirations for the future and saving accordingly

Identifying risks and choosing which to take and which to protect against

Managing money more effectively

Planning ahead better

Getting help when required

Seeking advice when required

Turning to the right places for advice

There are clear benefits for the Savings/Protection Industry

The savings/protection industry will benefit from improved financial capability

Consumers have more discretionary spending money

Consumers understand the benefits of savings and protection

Consumers are more likely to identify for themselves when they should buy a product

Consumer - facing staff can spend less time on educating customers about products etc

Consumers buy more savings and protection products that suit their needs

Distribution costs are lower

Consumers buy fewer inappropriate savings and protection products Consumers are better able to

judge what is good advice

Consumers are more likely to seek high quality advice

The lending industry will experience greater profitability from improved financial capability

And there are clear benefits for the lending industry

Consumers understand when and what type of debt to take on

Consumers proactively approach lenders rather than waiting to be sold to

Consumers take on more appropriate levels of debt

Consumers are more likely to pay back their debt

Consumers avoid taking on too much debt

Consumers budget for repayment

Consumers seek advice before their debts become unmanageable

The FSA’s programme of action is being delivered

Schools

Consumer Communications

Young Adults

Workplace

New parents

Money Advice

Online Tools

Two approaches

Direct to consumers• Money Made Clear – consumer website• On-line tools

– Financial Healthcheck– Debt Test– Comparative Tables– Calculators

• Make the Most of Your Money - workplace seminars• Parent’s Guide to Money - aimed at new parents and distributed through health service

Supporting intermediaries• Schools – teachers• Colleges and universities – student support services• Young adults who are not in education, employment or training – voluntary and community workers• Support Groups – e.g. those who support offenders, people living in social housing, cancer patients, the elderly

There are ambitious targets:

The FSA intends to reach more than 10 million people over 5 years

1.8m children in 4,000 of the 6,000 schools in England

Around 2 million young students in higher education

Around 1 million young people not in training, education or employment

4m employees in the workplace

1.5m new and prospective parents

4m annual visits to the FSA website

Schools: Learning Money Matters

• FSA has worked with the Government to raise profile and status of personal finance education in the school curriculum in each of England, Scotland, Wales and Northern Ireland

• Financial education will be included in a new Economic Wellbeing and Financial Education programme of study, from September 2008.

• Teachers need to be capable and confident in teaching about money matters. In England, the FSA is funding the Personal Finance Education Group (pfeg) to provide a one-stop shop of materials and consultancy support. Since launching this in September 2006, pfeg have delivered, or arranged to deliver, support to c20% secondary schools

• Comparable picture in Scotland, Wales and Northern Ireland

Helping Young Adults Make Sense of Money

Three strands:

•Higher Education (ie universities): in 2006/07, 20 universities helped develop the pastoral support toolkit (Money Doctors), successfully piloted at Roehampton University in 2005/06. This will be proactively rolled out to further 30 universities in 2007/08 and made available to all UK universities.

•Financial Education: FSA will work with 10 Further Education colleges in 2007/08 academic year to adapt the Money Doctors toolkit and to embed personal finance as a context for learning.

•Not in Employment, Education or Training (NEET): over the next three years, FSA aims to secure trainingof 20,000 intermediaries who work with NEET Young Adults

Workplace: Make the Most of Your Money

• The Model:

- All staff receive financial education and are invited to attend

seminars

- Trained presenters visit workplace to deliver one hour

seminars, open

to all staff

- All of this is provided free of charge

– A CD-Rom has been developed for employees (e.g. in

dispersed workforces or with small employers)

for whom seminars are not practicable

• Over 80% of seminar attendees say they will be doing

something about their finances. Of those telephoned

3 months later, over 60% had turned intention into action

• Partners include main employers organisation (CBI), main trade union body (TUC),

Chartered Institute of Personal and Development, Business in the Community

For new and prospective parents.

Comprehensive and accessible information in one place, budget calculators, signposts to other information and where to get help, etc

In recent pilot, 68% took ‘hard’ action (e.g. opened a savings account, wrote a will or reduced debts) and 85% of those credited the guide with a role in doing so

Larger trial in 3 Primary Care Trusts from Autumn 2007.

The Royal College of Midwives fully supports the strategy of distributing the guide via midwives.

Parent’s Guide to Money

•New consumer website - moneymadeclear – launched in December 2006 www.moneymadeclear.fsa.gov.uk impartial information from the FSA, theUK’s financial watchdog – no selling, no jargon, just the facts

•Plain Language Society has awarded Moneymadeclear its first gold standard

for a website

•FSA is developing a Young Adults website

•Online survey: 85% found content useful and 70% are more likely to make an informed decision

•New suite of publications available by end of September 2007. Piloting distribution via banks, building societies, credit unions and Citizens

Advice Bureaux

•Aim to double traffic to FSA website from 2 to 4 million over next 3 years

Online Tools

• Financial Healthcheck (launched June 2005) and Debt Test (launched January 2006) – over 2 million users

• Over 1 million visits annually to the comparative tables

• 600,000 visits annually to various calculators(loan, mortgage, budget and pension)

• Syndicating tools and information via a wide range of channels (taking materials to the traffic)

Delivering Money Advice via Support Groups (Innovation Fund and Development)

• The Model

- FSA provides seedcorn funding for groups to develop tailored programmes for their clients

- FSA works with these groups, and with national umbrella groups, on sustainability and replicability

Client groups (many of whom are vulnerable or excluded) supported in this way include:

Ex-offenders Older PeopleSingle parents People with AutismDisabled CarersDomestic violence victims Cancer patients

Thoresen Review of Generic Advice

• The Treasury commissioned Otto Thoresen (CEO of Aegon plc) to lead a feasibility study – not whether, but how.

• Public/private partnership?

• Devolved model, making use of existing providers?

The seven projects are designed to promote financial inclusion

• Learning Money Matters – Schools

• Make the Most of Your Money – the Workplace

• Young Adults

• Financial Healthcheck and the Debt Test

• Parent’s Guide to Money

• MoneyMadeClear

• Money Advice

• All children will be reached and this should help to prevent children from all backgrounds becoming financially excluded in later life

• Targeting large employers will capture many low paid employees

• Broaden participation in higher education and further education and enhance completion rates

• NEET project: many are likely to be financially excluded

• Already available to all. Broadening distribution further, including via groups who help the more vulnerable

• To be available to all

• Considered needs of financially excluded in developing website.

• Looking to work with various agencies, including those whose focus is on more vulnerable groups

Project Contribution to financial inclusion

The Government’s long-term approach document, published 15 January 2007

•“The Government’s approach will complement, and be coordinated with, the FSA’s National Strategy”

•“The FSA has developed a leading edge programme”

•Gap in the market for affordable generic financial advice. “A more preventative approach is needed, and the

Government considers that a national approach to the provision of generic advice is required”

•“Raising consumers’ financial capability .......... will have lasting benefits to individuals, the financial services industry and the wider UK economy”

Concluding thoughts• Lack of financial capability a huge issue for society and

individuals

• FSA’s programme to improve financial capability is in place and is being rapidly scaled up

• You can make a real difference – but it will take time

• Working through trusted intermediaries is key

• Keep it simple and engaging

• Win/win- government/citizens- financial service industry/consumers- teachers/pupils- universities/students- employers/employees