Wednesday 16 November 2016
New research from the Money Advice Service reveals that people across the UK could be better off by around £108 billion over the next 30 years if they were a better able to manage their money.
Research shows that people’s confidence and skills in dealing with money issues, known as “Financial Capability” remains stubbornly low. This means they could be missing out on the financial benefits that relatively small changes in their money management can bring. These benefits include increased investments of almost £50 billion, increased savings of nearly £20 billion and increased pensions of around £10 billion. People would have more spending power so consumption would be expected to increase by almost £30 billion. Importantly, those currently least able to manage their money would stand to benefit by £45 billion over 30 years.
The research, The Economic Impact of Improved Financial Capability, marks the first time that the UK wide impact of improved budgeting, credit and savings decisions has been assessed. At a time when the UK’s financial capability is stubbornly low, these figures show that improving money skills could have a range of benefits for consumers over the long term.
People with higher financial capability would be able to shop around to make money go further, understand compound interest, save regularly, and reduce impulse spending. As their capability increases, people would put more money into savings accounts and investments, with wealth increases estimated at around £80 billion over 30 years. People would also get better value for money as they start to shop around for the best deals on financial products, seeking lower interest rates on credit cards, loans and lower charges for investment products.
The incidence of over-indebtedness would fall by up to thirteen percent as a result of people better adapting their spending to their income, and becoming less dependent on high cost credit products. Reduced over-indebtedness brings other benefits, including improved health and wellbeing.
Finally, the finance industry would see increased demand for saving and investment products as well as more people seeking the best financial advice to help with their decisions.
Commenting on the findings, David Haigh, Director of Financial Capability for the Money Advice Service said: “The staggering numbers show clearly for the first time that small improvements to people’s money skills could have a huge impact at both an individual and national level, with a
positive effect on people’s wealth, and increased competition and innovation across the finance industry. As we embark on the first ever Financial Capability Week, this report provides an important reminder of why policy makers, the financial services industry, and other organisations must work together to find new ways to help people make the most of their money and make a real difference to their lives and tackle the low levels of financial capability across the UK.”
For more information please contact the Money Advice Service Press Office on 020 7943 email@example.com
NOTES TO EDITORS
About the Economic Impact of Financial Capability Report
The report is from Europe Economics, an independent economics consultancy. It uses data from the 2015 Financial Capability Survey (FCS) to simulate the financial lives of over 3000 real individuals over their remaining lives if their financial capability was improved. The model captures expected behaviours by modelling assumptions and conditions to describe the role of financial capability in peoples’ budgeting, credit and saving decisions. The modelling approach is fully described at Chapter 4 of the report. The policies needed to increase people’s financial capability was outside the scope of the research. The full report can be found here.
What is financial capability?
Financial capability is a person’s ability to manage money well, both day to day and through significant life events, and to handle periods of financial difficulty. It is driven by personal skills, knowledge, attitudes and motivations, and made possible by an inclusive financial system and supportive social environment. Financial capability helps people achieve the best possible financial wellbeing.
About the Money Advice Service
The Money Advice Service is an independent organisation. It gives free, unbiased money guidance online at moneyadviceservice.org.uk or via free phone on 0800 138 7777. Debt advice is also provided through a variety of partners across the UK. The Service was set up by Government and is paid for by a statutory levy on the financial services industry, raised through the Financial Conduct Authority. Its statutory objectives are to enhance the understanding and knowledge of members of the public about financial matters (including the UK financial system); and to enhance the ability of members of the public to manage their own financial affairs.