1. The need for Savings and/or Protection Insurance
STIP Event – Met Life
Thursday 9 February 2017
The need for Savings and/or Protection Insurance
Inigo Churchill Financial Capability Manager
The Money Advice Service

2. MAS Reports Financial Capability in the UK 2015
Technical Report for the 2015 Financial Capability Survey
Barriers and Building Blocks: An overview of the Adult Financial Capability Survey
Measuring financial capability – identifying the building blocks
The Economic Impact of Improved Financial Capability

3. The role of the survey • A map
Where is financially capable behaviour strong or weak?
• A diagnostic
Why is capability weak?
What capability factors might be driving this?
What interventions might be appropriate? (These interventions then need to be robustly tested separately)
• A high-level measure
Tracking financial capability over the life of the Strategy
BUT we know that improvements will be gradual, especially at the total population level
Likely to be bi-annual

4. Survey methodology
Nationally representative survey of UK adults aged 18+
Fieldwork was conducted from April – July 2015 by GfK
Mixed mode : 74% online and 26% face-to-face
Total of 5,603 interviews
3,461 nationally representative interviews
2,142 boost interviews in devolved nations and with year olds
Scotland : 1,101, Wales : 795 and Northern Ireland : 802
Questionnaire of 130 questions - Average 27 minute interview
Data weighted by age, gender, region, working status, internet usage and housing tenure

5. MANAGING MONEY WELL DAY TO DAY SCORES
Take control
Keep track : know current account balance +/-£ % (2005 : 56%)
Believe they have a budget approach that works (score 8+) 61%
Keep up with commitments without difficulty 58% (2014 : 48%)
Short-term buffer
Save every/most months %
Could pay an unexpected £300 bill from savings or cash 68%
Use credit sensibly
Don’t revolve credit card or use high-cost short-term credit 77%
Have unsecured debt less than one month’s income 70%
Maximise income
Check supplier tariffs (mobile phone, utilities etc) 78%

6. PLANNING FOR & MANAGING LIFE EVENTS SCORES
Have a plan
Have financial goals %
Have specific plans to achieve those goals 32%
Build resilience
Have savings equal to at least 3 months’ income 34%
Among working age group 28%
Among retired group 57%
Have life cover %
Families (2 x adults and children) 56%
Prepare for retirement
Pay in to pension or have previously 50%
Have a plan for long-term care (50+ only) 28%

7. DEALING WITH FINANCIAL DIFFICULTIES SCORES
Just over half of the population are able to keep up with their bills and financial commitments
Managing debt
Debts are not a heavy burden 90%
Not missed three months’ payments 89%
Neither of the above 83%
Over indebted population 17%
Proportion seeking advice 17%
8.2 million people of whom only 1.4 million are actively seeking help

8. The scale of the problem
8.2m are over-indebted
10 million can’t read their bank balance from a bank statement
20 million adults could not pay an unexpected bill of £300 from spare cash or savings
20 million adults don’t have an approach to keeping track of their finances that they feel works
16 million adults can’t work out a calculation to add interest earned to a savings balance
25 million adults have no financial goals
35 million adults don’t have a savings buffer equal to three months’ salary
35 million adults have no plan for achieving their financial goals

9. What do we mean by financial capability

10. Selected ability scores
Reading balance on bank statement 78% (2005 : 91%)
Comprehension of inflation and buying power 60% (2005 : 79%)
Calculate balance after interest added 64% (2010 : 61%)

11. Selected mindset scores
Attitudes to the future
Don’t prefer to just live for today % (2005 : 60%)
Very important to save for a rainy day %
Confidence and self-efficacy
Confident managing money (eight or more out of 10) 58%
Disagree that financial situation makes them anxious 46%
Believe they can make a difference %
Take responsibility
Very important to keep track of income and expenditure 53%
But of these c.30% don’t have an effective budgeting system
Disagree they are too busy to sort out their finances 64%
Like them to adjust non-essentials when life changes (score of 8+) 40%

12. Selected connection scores
Ease
Confident making financial product decisions (score of 8+) 47%
The individual components with the greatest influence on current and longer term financial wellbeing

13. Other recent research CIPD & Close Brothers
JAN 2017 ‘Employee financial well-being: why it’s important’
JAN 2017 ‘Employee financial well-being: the employee view’
JAN 2017 ‘Employee financial well-being: practical guidance’
JAN 2017 ‘Employee financial well-being: behavioural insights’
money worries affecting ability to do work 1 2 3 4
face barriers to managing their finances 1 2 3 4 5 6 7 8 9 10
feel less financially secure than at start 2016 1 2 3 4 5 6 7 8 9 10
lost sleep worrying about finances 1 2 3 4 5 6 7 8 9 10
money worries caused stress over past year 1 2 3 4 5 6 7 8 9 10

14. Other recent research Neyber MAY 2016 ‘The DNA of Financial Wellbeing’
UK workers affected by money worries 70% (2015: 65%)
Struggling at work due to financial worries 16%
Missed time off work due to financial worries 8%
18-24 year olds 18%
25-34 year olds 12%
35-49 year olds 6%
year olds 3%
Borrowed to meet basic financial needs 64%
Been refused credit %

15. Other recent research CII
NOV 2016 ‘Building Resilient Households: The future of financial provision for those too ill to work’
Each year, a million people in the UK suffer a prolonged absence from work due to sickness
A minority get sick pay from their employer, although most have to rely initially on Statutory Sick Pay (SSP) of £88 a week
SSP is not available to the self-employed
Up to half a million would find their savings run out after just a few weeks
Insurance products exist to help, providing cash payouts, support and rehabilitation to get people back to work
Rehabilitation and support reduce the length of sickness absences, bringing financial benefits for employers and the State as well as helping individuals
Only around 1 person in 10 is covered by insurance
A pound spent on these services can bring savings of £17

16. Other recent research Money & Mental Health Policy Institute
JAN 2017 ‘Seeing through the fog: how mental health problems affect financial capability’
DEC 2016 ‘The other one in four: how financial difficulty is neglected in mental health services’
Consumers with mental health problems believe their behaviour changes dramatically during periods of poor mental health
93% say they spend more when unwell
71% have put off dealing with creditors
59% have taken out a loan they wouldn’t have taken out otherwise

17. Conclusions Financially capable behaviour “remains stubbornly low”
Around 6 in 10 manage their money well
Only 4 in 10 prepare well for life events
8 million are over-indebted
Some evidence of a decline in skills & knowledge
Many still live for today
Lack of confidence is an issue
There are big differences across the population
Income and household composition are key drivers