12 August 2016
Commissioned by the Money Advice Service and the UK Financial Capability Strategy, this report carried out an extensive scoping review to establish which financial education programmes designed to improve financial capability amongst older people are effective.
‘What works? A review of the evidence on financial capability interventions and older people in retirement’ was commissioned by the Money Advice Service and the UK Financial Capability Strategy. The report carried out an extensive scoping review to establish which financial education programmes designed to improve financial capability amongst older people are effective.
A number of studies have found that financial capability, defined as a person’s ability to manage money well, both day to day and through significant life events is an essential prerequisite for sound financial decision-making. People with higher financial capability save and plan more for retirement, invest in the stock market and hold better differentiated portfolios, they choose cheaper mortgages, shop around for the best financial products and buy cheaper annuities. They are also less likely to be over-indebted and generally feel less anxious about their financial life.
Previous ILC-UK research has shown that of those aged over 55 with a private pension but not yet retired, only half understood what an annuity was “quite or very well”. Income drawdown was even less well understood. ILC-UK research has also revealed that older people have lower levels of numeracy than the young.
Yet whilst there is a need to increase levels of financial capability among older people, a new review by the International Longevity Centre -UK (ILC-UK) finds that there isn’t enough evidence out there of what actually works.
The report examines different financial domains to determine which interventions were most successful in helping older people to manage their money and plan for later life. It found that:
- Managing money day to day: whilst programme users generally reported high levels of satisfaction with such programmes, none of the evaluations that had been conducted could be termed as ‘high quality’.
- Planning ahead and managing life events: there is a lack of robust evidence about whether participants actually changed their behaviour after taking part in such programmes.
- The report also found that there are no formal evaluations for how to help people deal with funeral planning and bereavement in later life.
- Maximising income: while evidence of effectiveness was slightly stronger and evaluations showed good evidence of increased take-up of benefits following interventions, the interventions examined in the report were all relatively small, community based projects.
- Safeguarding from fraud: there are very few evaluated examples of successful interventions in this field, and it is difficult to draw any conclusions on what works from this limited evidence base.
- Lending in retirement and equity release: most interventions tend to consist of counselling or advice and are relatively successful in helping older homeowners understand the costs and benefits of equity release. However, these interventions have not been fully evaluated.
- Access to money management tools and guidance, financial products and services online: whilst there is evidence that that interventions increased levels of confidence amongst participants in using online tools and feeling more informed about general money management, evidence in this field is limited and evaluations are mainly lower quality.
Dr Cesira Urzì Brancati, Research Fellow, ILC-UK said:
“The world of money is becoming more complex and older people are more diverse in their experience and needs. Some older people need help understanding how to manage money. Others may need support with investments.
We need to do all we can to reduce the risk of more older people becoming victims of scams or abuse. Helping people better understand and manage their money has to be part of the solution.
But while there is a need to raise financial skills across our lives, our research reveals that we simply don’t adequately know how to best help people.”
David Haigh, Director of Financial Capability at the Money Advice Service, said:
“This report highlights how little we know about how best to improve the financial capability of older people. Whilst there are a number of interventions targeted at older people, there is little reliable and robust evaluation of whether they are truly effective.
That’s why the Money Advice Service recently announced the launch of the £7m What Works Fund. This fund is explicitly designed to help organisations carry out a robust evaluation of interventions they are delivering to improve financial capability. By learning more about what is really effective, we can seek to ensure resources and funding are focussed on interventions that really make a difference.
Generally, research shows that older people are financially capable. However, they face challenges around low levels of digital literacy and lack of planning for long term care. Discovering what works and targeting effective interventions in these areas will ensure that older people are able to effectively manage their money throughout later life.”
Anna Dixon, Chief Executive of the Centre for Ageing Better, said:
"We know that financial security is an important aspect of a good later life. Building financial capability among older people as well as those approaching retirement is an important part of ensuring that people are able to manage their money in later life.
This report highlights the limited evidence on ‘what works’ to increase financial capabilities among older people in retirement. 12.2 million people are projected to face inadequate retirement incomes.
The Centre for Ageing Better wants more people to feel prepared for later life. We welcome the launch of the £7 million fund by MAS and look forward to the learning which will emerge.”
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