Improving the financial capability of employees Nick Watkins, Money Advice Service 1
What is financial capability? Managing money well day-to-day Preparing for and managing life events Dealing with financial difficulties 2
Workers money management Keeping track? Only half (49%) know their current account balance to +/- 50 Having a 300 buffer? Only half (46%) can easily pay unexpected 300 bill from cash or savings Using credit sensibly? 20% have unsecured debts > 3mo income Poor money management is a barrier to savings and achieving life goals 3
Home ownership is a major life event Seven in ten mortgage holders stretched themselves when they got a mortgage Threequarters of recent first time buyers stretched themselves to buy a home 56% of all mortgage holders have a contingency plan in place for an interest rate rise (less likely for younger and lower earners) 4 Source: Affording Your Home, January 2014, BDRC
Children can cause financial strain Financial Incapability Index Number of financial problems 0.3 Income adjusted 1.8 0.25 Income unadjusted 1.6 1.4 0.2 1.2 0.15 1 0.8 0.1 0.6 0.05 0.4 0.2 0 No children 1 child 2 children 3 children 4 or more children 0 No children 1 child 2 children 3 children 4 or more children -0.05 5 Source: Source: Analysis of BHPS data, 2009, FSA
Mothers more likely to work There has been a steady rise in the percentage of women working This has coincided with a decline in the percentage of men working (especially over 40s) Married or co-habiting mothers in work Lone mothers in work 1996 2013 67% 72% 43% 60% 6 Source ONS 2013 (women in the labour market)
Unexpected life events do happen Over 3.3 million working-age consumers in last year (8.6%) * Highest among 45-54 year old s (9.9%) Due to Serious accident/illness : 1.31 million Redundancy : 1.24 million Divorce/separation : 855k Death of a partner : 175k Source GfK NOP Ltd, Financial Research Survey (FRS) 6 mo. ending March 2015, 23,729 adults aged 18-64 interviewed 7
Divorce and separation Response differs hugely between people Often a major shock to the system Focus on children and home, not finances Finances may be complicated and there can be shocks and unexpected debts Tendency to wait until (almost) too late to ask for help or advice 8
People do not plan for the unexpected Planning is for cars, conservatories or retirement They don t (want to) believe negative events will happen to them When asked, people recognise they aren t prepared for financial shocks Not thought about it Thought about it - but can t afford Thought about it but won t happen to me Thought about it but life is for living This can lead to serious money problems, including over-indebtedness 9 Source : TNS-BMRB Financial Wellbeing 2015
The effects of over-indebtedness Stress & anxiety 89% Relationship issues 45% Worry about their money problems most or all of the time Say problems have had a negative effect on relationships with partners Physical & mental health issues I feel under stress. I ve lost a stone in weight and I cry both at home and at work. My debts have put a severe strain on my new relationship. My partner and I argue and she blames me for the situation. 48% Describe impact of problems on their health as great My illness, depression and stress has been exacerbated by my debt problem. Absence from work 19% Have needed to take time off work as a result of money worries I am receiving treatment for depression from my GP. 10 Source = Legal Services Research Centre, The Impact of Debt Advice on People s Lives, 2004 Citizens Advice Scotland, In too deep: CAB clients experience of debt, 2003
Implications for employees Engagement Keep track Budget Plan ahead Build a buffer Response Be rational Take action Money management Crisis Life goals Planning Be realistic Set goals Understand full costs Be aware of risks 11
What might employers do? Tools Current account Budgeting Numeracy skills? Advice Be pro-active if possible Money management Crisis Life goals Education Just-in-time education opportunity Online tools or workshops Focus on home ownership and children 12
Questions? nick.watkins@moneyadviceservice.org.uk 13