1 Putting the horse before the cart: Factors that influence financial capability and effectiveness Ms Victoria Vyvyan Dr Mark Brimble

2 Introduction & background Theoretical framework Research Descriptive framework and factors

3 Financial Literacy- Capability- Effectiveness What comes first – the knowledge or the desire? - the knowledge of the intention? - the horse or the cart? How much do we know about what influences financial behaviour? What should be in the programs and resources that we design?

4 Financial Capability Multi dimensional Influenced by a number of factors - Macro economic - Socio economic - Demographic - Personal characteristics - Needs and wants - Life events - Consumer skills - Access to information (Consumer and financial literacy taskforce, 2004)

5 What Do We Understand About Financial Capability? Skills and knowledge –Managing money –Planning ahead –Making Choices –Getting help (Personal Finance Research Centre, 2005) Behavioural factors –Unhealthy ways of thinking Effect of Factors outside of your control (AC Nielsen & ANZ, 2005)

6 Behavioural Beliefs Background Factors Individual Personality Mood, emotion Intelligence Values, stereotypes General attitudes Experiences Social Education Age, gender Income Religion Race, ethnicity Culture Information Knowledge Media Intervention Normative Beliefs Control Beliefs Attitudes toward the behaviour Personal Norm Perceived Behavioural Control Intention Behaviour Theory of Planned Behaviour (Ajzen)

7 Attitudes and Behaviour Theory of Planned Behaviour (Ajzen) –Human behaviour is influenced by three main considerations Beliefs about the outcome of the behaviour Beliefs about the expectations of others Beliefs about the presence of factors that may impeded or facilitate ability to perform the behaviour –These beliefs form attitudes, subjective norm and perceived behavioural control which can explain intention to perform a behaviour

8 TpB has been the basis of much of the attitude: behaviour research in social psychology and health promotion Other factors such as affect, time, experience, and self efficacy have been found by some studies to add to the explanatory power of the theory (Armitage, 2001; Ajzen, 2005) Some research in finance has utilised this theory – (Johnson, 2003; Weiner, 2004; East, 1993)

9 What are the components of financial capability? –What factors facilitate the development of financial capability? –What factors inhibit the development of financial capability? –What knowledge, skills and attitudes contribute to financial capability? –What other factors contribute to the development of financial capability?

10 Focus groups –Financial counselors, financial planners, women, general population, young people; –Using Nvivo to analyse text to identify concepts and categories –18 financial counselors in SE Queensland, in three focus groups; (5 men and 13 women) –Discussion guide –How would you describe someone who was effectively managing their personal finances? –“What about someone who was not effectively managing their personal finances? –What you think it would take for someone who was not financially effective to become financially effective?”

11 CategoryFactors that promote financial capability Factors that inhibit financial capability Background factors Family upbringing and childhood experiences Security of employmentInsecurity of employment Security of locationInsecure location Security of relationshipsInsecure relationship Life changing events Insufficient income Gender – women Health problems – emotional and physical, addictions Availability of credit

12 Family upbringing –Bad decisions in the family can motivate desire to change –Financial behaviour in the home is seen as the norm –Siblings from the same family can be quite different Security –Employment, relationship, location – income & mental/emotional health Life changing events –Change in living arrangements (divorce, widowhood) can spill over into other realms Income –Insufficient income impedes ability and motivation to change

13 Gender –Women vulnerable to money as control in relationships –Baby bonus and exploitation –Trust = Love = your pin number Health –Physical and mental health issues – carer issues, stress, costs –Addictions Access to credit –Availability of credit and marketing of credit –Expectation of credit card

14 Attitudes Spending as reward ResponsibilityEntitlement Live within their meansMaterialism Attitude to risk – willing to take risk Attitude to risk – unwilling to take risk Desire for change Future focusPresent focus Concern about money Unconcerned about money

15 Entitlement –Others are responsible –I am entitled to have what others have Spending as reward for deprivation –Compensation for deprivation –Compensation for work/life stress Materialism –Consumption a measure of success –Perception that must be like others Living within your means –Determining wants and needs –Being frugal

16 Risk –Overly cautious or risk taking Change –Desire for change –Anxiety and worry Focus –Future or present Concern about money –Necessary for change to occur –Ambivalence

17 NormsInfluence of a partner Presence of a mentorAbsence of a mentor Social expectationsSocial expectation Influence of family and friends

18 Influence of partner, friends, family –Working together – complimentary skill sets –Vulnerability in relationship –Attitudes and values Social expectations –Have it now –Level of consumption is normal Presence of a mentor –Encouragement, motivation, support –Sounding board –Family, friend, financial counselor

19 Perceived Behavioural control Self confidence/esteemLack of confidence/ self esteem Belief that they can change things Belief they are Unable to change things Belief that they will prosper

20 Self confidence and esteem Belief that things can change –Resignation to continual problems –Role of financial counselor –Able to identify and act on opportunities Belief that they will prosper –Optimism – glass half full

21 Skills and Knowledge Knowledge NOT important Realistic about their cash flowUnrealistic about their cash flow Set goals and planHave no goals or plans Ability to research Understand numbers

22 Cash flow management –Realistic estimation of expenses and income –Realistic notion of purchasing power on income –Any attempt at budgeting shows a desire to change Planning and goal setting –Goals provide momentum to move forward –Achievement of goals contributes to self esteem and belief that things can change Numeracy skills and researching Knowledge –Not related to financial capability

23 Conclusion To change behaviour we have to understand it. First step is to identify the factors. How important are these factors? Which of them are moderators, and which help to explain financially capable behaviour? Development of the model and testing it. Limitations – 3 focus groups, initial analysis only.