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Numeracyliteraturereview

February2017

PreparedforMoneyAdviceService

1

TECHNICALDOC1Numeracyliteraturereview[4].docx

DateLastEdited:1November,2017 CheckedBy:AH DateChecked:24/2/2017

ContentsExecutivesummary 3

Listoftablesandfigures 4

Authors 4

Introduction 5

Background 5

Objectives 5

Methodology 5

Numeracyandfinancialcapability 6

DefiningNumeracy 6

Evidenceforacausaleffectbetweennumeracyandfinancialcapability 6

Attitudesandmotivationsforfinancialbehaviour 6

Demographicfactors 7

Financialconfidence 8

Financialliteracy 8

Demographicdifferences 9

Managingday-to-day 10

Numeracy 10

Financialliteracy 11

Choosingproducts 12

Numeracy 12


Decision-makingprocess 12

Planningahead 13

Numeracy 13


Demographicandattitudinaldifferences 14

Interventions 15

Theroleofnumeracyinfinancialeducation 15

Effectiveinterventions 15

Currentevidenceandknowledgegaps-recommendations 16

Knowledgegaps 16

Considerationsforadultbasicskillspolicy 16

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Conclusions 17

Numeracyandfinancialcapability 17

Financialconfidence 17

Managingday-to-day 17

Choosingproducts 17

Planningahead 18

Interventions 18

References 19

Stayintouch 21

Appendices 22

Appendix1:Detailsofstudiesreferredto 22

Appendix2:Questionsusedtomeasurenumeracyandfinancialliteracy 25

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ExecutivesummaryWhilstthereisastrongcorrelationbetweennumeracyand/orfinancialliteracyandlevelsoffinancialcapability,thereislessevidenceforacausalrelationshipbetweenthetwo.Demographicfactorssuchasgender,ethnicity,educationandincome,aswellasattitudinaldifferencesplayasignificantroleinthefinancialdecision-makingprocess,particularlyforlessnumerateindividuals.

Whenitcomestochoosingproducts,thereisastrongcorrelationbetweennumeracyand/orfinancialliteracyandtheabilitytomakesensibleinformedchoices,basedonvarioussourcesofinformation.Financialconfidence,bywhichismeantanindividual’ssenseoftheirownabilitytomanagemoney,isalsoasignificantfactorinfinancialdecision-making,andlowerlevelsoffinancialliteracycanimpactonfinancialconfidence.Thistypicallyoccursamongstyoungerpeopleandwomen.However,evidencesuggeststhatover-confidenceexistsamongstcertaindemographicgroups,typicallytheolderrelativelywell-off,andthiscanresultinindividualsbeinglesslikelytoseekprofessionaladviceandpotentiallymakingpoorerdecisionsasaresult.Dedicatedfinancialeducationprogrammescanhaveapositiveimpactinrelationtolevelsoffinancialconfidenceandthereforeindividuals’abilitytomanagemoney,yetthosewhofeeltheylacknumeracyskillsaretypicallylesslikelytowanttoimproveinthisarea.

Thereisalsoastronglinkbetweennumeracyand/orfinancialliteracyandday-to-dayfinancialmanagement,withthosewithmoreadvancednumeracyskillsbeingmorelikelytocheckbillsorbankstatementsonaregularbasis.However,theevidencetosupportthisrelationshipisusuallycaveatedbyotherfactors.Thosewhoarelesslikelytokeepontopofday-to-dayfinancialmanagementmaytakelessofaninterestgenerally,whilebackgroundfactorssuchasincomeandeducationcanplayarole,againunderminingthecaseforacausalrelationship.

Planningaheadisalsopositivelyinfluencedbylevelsofnumeracyand/orfinancialliteracy.Intermsofdemographics,long-termfinancialplanningismorelikelytobeundertakenbyolder,wealthierandmoreeducatedindividuals,withthesegroupstakingmoreofanactiveapproachtosavingsandinvestments.Atanattitudinallevel,thereisalsosomeevidencethatindicateslessnumerateindividualsaremoreliketoconsidershort-termoverlong-termfinancialplanning.

Thereisagoodamountofevidencetosuggestthatinterventionssuchasfinancialeducationprogrammescanstimulatepositivefinancialbehaviourchange.However,thelow-numeracygroupssuchprogrammesareaimedattendtobehardtoengage,thusunderminingthepositiveimpactsthatsuchprogrammescanhave.Questionsaroundwhethersuchprogrammesshouldfocusonnumeracyorfinancialliteracyremain.

Moreempiricalresearchisrequiredintotheattitudesoflow-numeracy/financialliteracygroupstowardsbothlonger-termplanningandday-to-daymanagement,andalsointothebarrierstogoodmoney-management.

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ListoftablesandfiguresFigure1:Numeracylevelsbyfrequencyofcheckingbillsorbankstatements,fromBISresearchpaper,no.81(seerefs)

AuthorsDrAlisonHulme,AssociateDirector,BreakingBlue–isaspecialistinqualitativeresearchtechniques,andhasconductedmanyliteraturereviewsandempiricalstudiesintothefinancialsectorandsurroundingsocio-economicissues.

JohnNewton,AssociateDirector,BreakingBlue–isaquantitativeandqualitativeexpertandhasundertakenarangeofprojectsrelatingtofinancialdecision-makingandconsumerbehaviour.

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Introduction

Background

Previousresearchhasfoundlowernumeracytobelinkedtolowereffectivenessinkeepingtrackoffinancesandlowerconfidencemanagingmoney,whilehighernumeracyhasbeenlinkedtosettingfinancialgoalsandusingbest-buyliteraturewhenchoosingproducts.TheMoneyAdviceService(MAS)continuestoexplorethepossibleconsiderationsforadultbasicskillspolicyforstakeholdersinthepublic,privateandcharitablesectorsandcontributetothefinancialcapabilityevidencebase.Thisliteraturereviewprovidesa‘deepdive’inordertoestablishthelinksbetweennumeracyandfinancialcapability,andinformthedevelopmentofsuccessfulfinancialcapabilityinterventionsforworkingageadults,includingthedesignofappropriatepolicy.

Objectives

Thekeyobjectivesofthisliteraturerevieware:• togainabetterunderstandingoftherelationship

betweennumeracyandfinancialcapability,andwhetherthereisacausalrelationshipbetweenthetwo

• toanalysewhethernumeracyismore,orless,importantthanattitudesandmotivationswhenitcomestofinancialcapability

• tounderstandifthereareparticulardemographicfactorsthataffectnumeracyandconsequentlyfinancialcapability;forexample,gender,ethnicity,educationlevel

• toanalysetheroleoffinancialconfidenceinfinancialcapability

• toexaminewhatgoodmeasuresofnumeracyandfinancialcapabilitymightbeandhowinterventionscanbesttaketheseintoconsideration

• toidentifygapsinthecurrentevidencebasewherenewresearchmayberequired

Methodology

Thisliteraturereviewwasconductedbasedonourestablishedandsuccessfulapproachtofinding,reviewing,andanalysingexistingsources.AninitiallistofsourceswasprovidedbyMAS,basedonarticlesrecommendedbyindividualstakeholdersduringinterviews.Weaddedtothislistviakeywordsearches,utilizingacademicdatabases,industryreports,andbothonlineandofflinechannels.Wethen‘snowballed’thislistbyreviewingthosesourcestheymentionedtoseeiftheywererelevant,andrepeatedthisprocesswithanynewarticlesweincluded.AllsourceswerethenreadandsummarizedagainstthehypothesesprovidedbyMAS,andinlightofanyadditionalthemesrelevanttothosehypotheses.Analysiswasconductedinordertoascertainandagreeuponemergingthemes,whichthenbecamethebasisforthechaptersofthisreport.

Itshouldbenotedthatallresearchapproacheshavesomemethodologicallimitationsandaliteraturereviewisnoexception.Thisstudyincorporatedonlyrecognised,published,secondaryresearch.Noun-publishedmaterialwasincluded.Wewere,therefore,boundbytheinformationthatwasavailabletous:notallofthesubjectsthatwereofinteresttothereviewhadnecessarilybeencoveredbyexisting,publishedresearch.Inaddition,thisliteraturereviewwaslimitedtopublishedsourcesintheEnglishlanguageonly,andsoexcludedanysourceswrittenexclusivelyinotherlanguagesandnottranslatedintoEnglish.

Anyresearchstudyconductedwithinasettimelimitisboundtobesomewhatselective.Althoughgreateffortwastakentoassessallpotentialsourcesofinformation,itisimpossibletoguaranteethateveryrelevantsourcewasreviewed.Overall,thequalityoftheevidenceevaluatedwashigh,butonlyreliablesourcesofdatawereincluded.Thismeantthosenotbackedbyanestablishedbody,orpublishedinanestablishedjournalwererejected;aswerethosepublishedinjournalsthatwerenotpeerreviewed;web-onlysourceswerepermittedwheretheyappearedviathewebsitesofrespectedorganisations.Thereferencesdonotincludematerialsidentifiedviasearchesbutrejectedfromthestudyonthesegrounds.

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Numeracyandfinancialcapability

DefiningNumeracy

Throughoutthisreportwerefertoboth‘numeracy’and‘financialliteracy’.Bynumeracywemeantheextenttowhichanindividualisnumerate,i.e.theirproficiencyatundertakingmathematicalcalculationsoutsideofafinancialcontext.Byfinancialliteracywemeanamoregeneralmeasureincludingtheabilitytoperformbasicfinancialcalculations(usuallyrelatedtoconceptssuchascompoundinterest,inflationandtimevalueofmoney)aswellastheirresponsestobroaderquestionsonfinancialproductsandplanning.Mostofthesourceswereviewedusedthetwotermsinwaysalignedtothesedefinitions;wheretheydidnot,wehaveexplainedtheirspecificdefinitions.Afewsourcesusedthetermsinterchangeably,andinthiscasewehaveinterpretedwhatismeantonacase-by-casebasis.

Werecogniseinusingthesetwotermsthatthedifferenceisanimportantone.Anindividualmayhavelownumeracybutstillhavegoodfinancialliteracy.Therefore,wearecarefultopointoutwhereitisactuallygreaterfinancialliteracythatmayberequired,asopposedtogreaternumeracy(althoughweacceptthathighernumeracycertainlyaidslevelsoffinancialliteracy,andthatatthemostbasiclevel,financialliteracyisnotpossiblewithoutnumeracy).

Evidenceforacausaleffectbetweennumeracyandfinancialcapability

Thereareseveralstudiesnotedthroughoutthisreportthathighlightastrongcorrelationbetweennumeracyand/orfinancialliteracyskillsandlevelsoffinancialcapability;thosewhohavestrongerskillsintheseareastypicallymanagetheirfinancesandmakeproductchoicesinamoreeffectivemanner.Forexample,astudyundertakenbythe

1BanksandOldfield(2007)Understandingpensions:Cognitivefunctions,numericalabilityandretirementsaving2HogarthandHilgert(2002):FinancialKnowledge,ExperienceandLearningPreferences:PreliminaryResultsfromaNewSurveyonFinancialLiteracy3ColeandFernando(2008).Assessingtheimportanceoffinancialliteracy4HogarthandHilgert(2003):HouseholdFinancialManagement:TheConnectionbetweenKnowledgeandBehavior5MoneyAdviceService(2015)Measuringfinancialcapability–identifyingthebuildingblocksUnderstandingwhatdrivesorinhibitsconsumers’financialwellbeingandresilience

InstituteforFiscalStudiesfoundstrongpositivecorrelationsbetweennumeracylevelsandproductchoicesaroundretirementplanning1,whileHogarthandHilgert(2002)2findastrongcorrelationbetweenthosewhoscorehigheronfinancialliteracytestsandthosewhofollowrecommendedfinancialpracticessuchaspayingallbillsontimeandhavinganemergencyfund.

However,thereislessevidencethatdemonstratesacausaleffectbetweennumeracyand/orfinancialliteracyandlevelsoffinancialcapability.Indeed,ColeandFernando(2008)3considervariousstudiesthatexplorethisrelationship(particularlyinrelationtofinancialliteracyprogrammes)andmakethecasethat‘financialliteracymaybeasecondary,oreventertiary,determinantofindividualfinancialbehaviour’.Whiletheyacknowledgethatimprovedfinancialliteracymaywellhaveapositiveimpact,theyarguethatfindingadegreeofcausalityisdifficulttoachieveinthecontextofotherfactorsthatcouldinfluencedecision-making.Inaddition,HogarthandHilgert(2003)4placedoubtonthecausalityoftherelationshipbetweenfinancialliteracyandbehaviour.Theyarguethatknowledgemayincreaseaswealthincreases,orotherfactorssuchasfamilyexperiencesandeconomicbackground,mayaffectbothknowledgeandbehaviour.

Attitudesandmotivationsforfinancialbehaviour

Therearevariousfactorsthatfeedintofinancialcapabilityanddecision-makingalongsidelevelsofnumeracyand/orfinancialliteracy.AsoutlinedbytheMoneyAdviceServiceinitsanalysisoftheUKFinancialCapabilitySurvey5,factorsincludingfinancialconfidenceandfinancialengagementarekeycomponentsoffinancialwellbeing(or‘enablersandinhibitors’specifically),more-sothanfinancialnumeracyskills.Thepaperconcludes‘thatitisanindividual’sconfidenceinapplyingtheirbasicnumeracyskillsthatisimportant’;i.e.assumingan

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individualhasabasiclevelofnumeracy,itistheirconfidenceinmanagingeverydaymoneymattersthathasthegreatestimpact.Confidenceisinvestigatedinmoredetailonpage10.

Thereisevidencetosuggestthatlessrationalfactorsfeedintothedecision-makingofindividualswithlowernumeracyand/orfinancialliteracyskills.Forexample,researchindicatesthatlessnumerateindividualsattachmoreimportancetoshort-termcostsandbenefitsthanthosethatmayoccurinthedistantfuture6.Furthermore,experimentshaveshownthatthosewithmoreadvancedfinancialliteracyskillsaremoreeffectiveatmakingfinancialjudgementsoverthelong-term.Forexample,HastingsandMitchell(2011)7findalinkbetweenfinancialliteracyandimpatiencewhenexploringinvestmentdecisions,thatsuggests‘thosewhochoosetodeferpaymentforagreaterrewardaremorelikelytopossessabasicunderstandingofsimplemathandfinancialconceptsnecessarytomakeintertemporalfinancialdecisions’.Inaddition,andasoutlinedonpage14,evidencealsosuggeststhattheselessnumerategroupsuselessinformationwhenchoosingfinancialproducts,andaremorelikelytouseeasier-to-determinecharacteristicstosupporttheirdecision-making.

Demographicfactors

Thereareseveralstudiesthatdemonstratedifferencesinnumericaland/orfinancialliteracyskillsatagenderlevel.Acrossmostnumeracyandfinancialliteracystudies,menweregenerallyfoundtoperformatahigherlevelthanwomen.Forexample,onnumeracyskillsspecifically,theSkillsforLifeSurveyrunbyBISshowsthatwomenarelesslikelytobeatEntryLevel3orabove(73%of

6Frederick(2005)CognitiveReflectionandDecisionMaking7HastingsandMitchell(2011)Howfinancialliteracyandimpatienceshaperetirementwealthandinvestmentbehaviors8AlmenbergandDreber(2011)Gender,financialliteracyandstockmarketparticipation.9LusardiandMitchell(2009)Howordinaryconsumersmakecomplexeconomicdecisions:Financialliteracyandretirementreadiness.10LusardiandMitchell(2007)Financialliteracyandretirementpreparedness:Evidenceandimplicationsforfinancialeducation.

womenvs.79%ofmen).Mostacademicsourcesagreedthatlowerlevelsofnumeracyand/orfinancialliteracycanpotentiallyleadtowomenhavinglowerlevelsofengagementwithfinancialmarketsgenerally.AlmenbergandDreber(2012)8concludethatgenderdifferencesinfinancialliteracycanexplainasignificantpartofthegendergapinstockmarketparticipation,whileLusardiandMitchel(2009)9findthatwomenarelesslikelytoplanforretirement.However,whilemanyauthorsrelatethisbacktolowerlevelsoffinancialliteracy,somearguethatotherfactorsareatplay.Forexample,Lusardi(2012)notesthatwomenaremorelikelytoindicatethattheydonotknowtheanswertoafinancialliteracyquestion,whichmayindicatealackofconfidenceinfinancialknowledgeratherthanlackofactualknowledge(furtherdetailsonconfidenceinrelationtogendercanbefoundonpage10).

Thereisalsoaconsistentgapinlevelsofnumeracyandfinancialliteracybysocio-economicstatusandeducationattainment,withvarioussourcessubstantiatingthispoint.LusardiandMitchell(2007)10emphasisewherethegapsinlevelsofnumeracyandfinancialliteracytypicallylie–‘lessfinanciallyknowledgeablerespondentsweremorelikelytobesingle,relativelyuneducated,relativelylowincome,minority,andeitheryoungorold(notmiddle-aged)’.

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Financialconfidence

Financialliteracy

Whiletherearefewstudiesthatfocusonthetopicoffinancialconfidenceinrelationtonumeracyspecifically,thereissomeevidencetosupporttheviewthatlowerlevelsoffinancialliteracycanimpactonconfidenceinmanagingmoney.TheAustralianCommonwealthBankFoundationciteresearch11thatshowslevelsofconfidenceinrelationtosavingmoneyandwithstandingfinancialpressurearehigheramongstindividualswithhigherfinancialliteracyscores.Inaddition,thereisevidencethatindicatesthatlowerlevelsoffinancialconfidencecanimpactonengagingwithfinancialmattersandtakingoutfinancialproducts.Forexample,manyindividualsaredeterredfromenteringthestockmarketbecauseoflowlevelsoffinancialconfidence,underpinnedbyalackofknowledgeandunderstanding;studiesamongstDutch12andAmerican13adultsemphasisethispoint.

Ontheotherhand,studiesshowthatlevelsofover-confidenceinrelationtofinancialliteracycanalsohavepotentiallynegativeimpacts.LusardiandMitchell(2007)14citeevidencefromGermany,UnitedStates,UnitedKingdomandAustraliathatdemonstrateamismatchbetweenhighlevelsofconfidenceinunderstandingfinancialissues,andfarlowerlevelsofactualcomprehension.Theauthorsconcludethiscouldhaveanegativeimpactintermsof‘seekingoutprofessionaladvice,thuswideningthe‘knowledgegap’’.Havingsaidthat,thesameauthorsfindastrongcorrelationbetween'objectiveandsubjectiveliteracy'ina2009paper15;thatis,highlevelsoffinancialliteracyareassociatedmorestronglywiththosewhoreporthighlevelsofeconomicknowledge.

11CommonwealthBankFoundation(2004)ImprovingfinancialliteracyinAustralia:benefitsfortheindividualandthenation.Keyfindings12AlmenbergandDreber(2011)Gender,financialliteracyandstockmarketparticipation.13LusardiandMitchell(2011)Theoutlookforfinancialliteracy14LusardiandMitchell(2007)Financialliteracyandretirementpreparedness:Evidenceandimplicationsforfinancialeducation.15LusardiandMitchell(2009)Howordinaryconsumersmakecomplexeconomicdecisions:Financialliteracyandretirementreadiness.16Palameta,Nguyen,Shek-waiHui,Gyarmati(2016)Thelinkbetweenfinancialconfidenceandfinancialoutcomesamongworking-agedCanadians17Huddleston-Casas,DanesandBoyce(1999)ImpactEvaluationofaFinancialLiteracyProgram:EvidenceforNeededEducationalPolicyChange18BISResearchPaperNumber267(2016)ImpactofPoorEnglishandMathsSkillsonEmployers:LiteratureReview

TheissueofconfidenceinafinancialcontextisalsoinvestigatedaspartofastudyundertakenbytheFinancialConsumerAgencyofCanada16,whichexplorestherelationshipbetweenknowledge(i.e.understandingoffinancialmatters),skills(theabilitytoapplyfinancialknowledgeineverydaylife)andconfidence(theself-assurancetomakeimportantdecisions).Thefindingsshowedthatfinancialconfidenceisinfactabetterpredictorthanfinancialknowledgewhenitcomestooutcomesassociatedwithday-to-daymoneyanddebtmanagement.Italsoshowedthatthosewithhighlevelsofknowledgearelikelytoexperiencerelativelypooroutcomesiftheyalsohavelowlevelsoffinancialconfidence,whilethosewhohaverelativelylowlevelsofknowledgeachievegoodoutcomesintheseareasiftheyhavehighlevelsoffinancialconfidence.Inlinewithfindingsrelatedtofinancialliteracy,thestudyfoundthatgroupswithlowerlevelsoffinancialconfidenceincludedwomen,thoselivinginlow-incomehouseholdsandthosewithlowerlevelsofeducationalattainment.

Thereisevidencetosuggestthatdedicatedfinancialeducationprogrammeshaveapositiveimpactnotonlyonlevelsoffinancialknowledge,butalsoinrelationtoconfidence.Forexample,inafinancialtrainingprogrammerunwithhighschoolstudentsspecifically,Huddleston-Casas,DanesandBoyce(1999)17foundthatamongstthosewhoparticipatedintheprogramme,theproportionwho‘almostalways’feltconfidentaboutmakingdecisionsthatdealtwithmoneyincreasedfromaroundafifthbeforetheprogrammetoaroundhalfthereafter.Inaddition,inaLiteratureReviewundertakenbyBIS18onworkplaceEnglishandMathsskills,theauthorsciteevidencefromvariousinternationalprogrammesthatdemonstratework-basedliteracyandnumeracyprogrammescanimproveemployeeconfidenceandmorale.

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However,therearesomeindicationsthatthosewhobelievetheirnumeracyskillstobelackingarelesslikelytowanttoimproveinthisarea,makingitpotentiallydifficulttoengagethosewithlownumeracy,butwhocouldgaingoodlevelsoffinancialconfidence.BynnerandParsons(2006)19undertookananalysisoflongitudinalBritishCohortStudiesandfoundthat‘'aroundthree-and-a-halftimesasmanymenandwomenwithEntryLevel2numeracywantedtoimprovetheirnumericalskillsincomparisonwithmenandwomenwithLevel2numeracy’.

Demographicdifferences

Gapsbetweenperceivedandactuallevelsoffinancialliteracyalsovarydependingonarangeoffactors.LusardiandMitchell(2011)20undertakefurtheranalysisofself-assessedfinancialknowledgeinrelationtoactuallevelsoffinancialliteracy.Theresultsshowthatthosefromyoungeragegroups(whoaremorelikelytohavelowerlevelsoffinancialliteracy)aremoreaccurateatself-assessingtheirfinancialknowledgethanolderagegroups,whereactualfinancialliteracyislowbutself-assessedfinancialknowledgeishigh.Inaddition,researchshowsthatincomeandeducationimpactsonlevelsoffinancialconfidence.

19BynnerandParsons(2006)NewLightonLiteracyandNumeracy;ResultsoftheLiteracyandNumeracyAssessmentintheAge34follow-upofthe1970BritishCohortStudy20LusardiandMitchell(2011)FinancialliteracyandretirementplanningintheUnitedStates.21SchagenandLines(1996)FinancialLiteracyinAdultLife:AReporttotheNatWestGroupCharitableTrust,Slough,Berkshire22Sole(2014)FinancialLiteracy:AnEssentialComponentofMathematicsLiteracyandNumeracy23FINRAInvestorEducationFoundation(2012)FinancialCapabilityintheUnitedStatesReportofFindingsfromthe2012NationalFinancialCapabilityStudy

ApaperbySchagenandLines(1996)21focussedonavarietyoffactorsofday-to-daymoneymanagement;groupssuchassingleparentsonbenefits,familiesinrentedaccommodationandstudentsweremorelikelytoratetheirconfidenceincarryingoutavarietyofday-to-dayfinance-relatedtaskslowerthanthegeneralpublic.

Thereisalsoevidencetosuggestthatwomenarelessconfidentintheirfinancialcapabilitythanmen.Forstudentsspecifically,ChenandVolpe(2002)concludethat‘collegewomenwerefoundtobelessconfident,lessenthusiastic,andlesswillingtoincreasetheirknowledgeofpersonalfinancecomparedtocollegemen’22.Perhapsrelatedtothis,therearewell-establisheddifferencesinriskbehaviourbetweenmenandwomen,withaUnitedStatesstudyshowingthatmenaremorethantwiceaslikelytobewillingtotakefinancialrisks23.

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Managingday-to-day

Numeracy

Studiesclearlyhighlighttherelationshipbetweennumeracy,financialliteracyandday-to-dayfinancialmanagement.Activitiessuchasmanagingaphonecontract,payingutilitybillsandkeepingtrackoffinancesgenerallytendtobemorechallengingforthosewhoexhibitlowerlevelsofnumeracy,financialliteracyandknowledgeoffinancialmatters.

Thelinkbetweenday-to-dayfinancialmanagementandnumeracyspecifically,isevidencedmostdirectlyinthelatestSkillsforLifeSurveyrunbyBIS(DepartmentofBusiness,InnovationandSkills)24.Whenfocussingonthefrequencyofcheckingbillsorbankstatements,itfoundthatthosewhoscoredlowerinnumeracyassessmentswerelesslikelytochecktheirbillsonaregularbasis.Forexample,only5%ofthosewhocheckbillsorbankstatementsmorethanonceaweekhavenumeracylevelsofEntryLevel1orbelow,comparedtoathird(33%)atLevel1andaquarter(24%)atLevel2orabove.Thetablebelowoutlinesthedifferencesbetweennumeracylevelandfrequencyofcheckinginfull.

Figure1:Numeracylevelsbyfrequencyofcheckingbillsorbankstatements1

However,thisstudyalsohighlightedtherolethatotherfactorsbesidesnumeracycanplayinhowfrequentlyindividualschecktheirfinances,suchasalackofinterestgenerallyanddealingwithbanksonalessfrequentbasis.Forexample,thestudyfoundthatrespondentsagedbetween16and19,werejustaslikelyasotheragegroupstoratetheirmathsskillspositively,butwerethemostlikelytoavoidcheckingbillsandstatements(17%,comparedto6%overall).

Atkinson(2007)25findsthat‘makingendsmeet’ismorechallengingforthosewithlowerliteracyandnumeracyskills.Sheunpickstherelationship

24BISResearchPaperNumber81(2012)The2011SkillsforLifeSurvey:ASurveyofLiteracy,NumeracyandICTLevelsinEngland25Atkinson(2007)Financialcapabilityamongstadultswithliteracyandnumeracyneeds

betweenday-to-daymanagementandnumeracyaspartofhersecondaryanalysisoftheBaselineSurveyofFinancialCapability(BSFC),originallyundertakenonbehalfoftheFinancialServicesAuthority(FSA,predecessortotheFCA)in2005.Whilethesurveydidnotdirectlyidentifythosewithnumeracydifficulties,Atkinsonconcentratedonthreegroupsofadultswhowerelikelytohaveliteracyandnumeracyneedsasaproxy:

• GroupA:thosewithnoqualificationaboveaGCSEgradeD-Gorequivalent,

• GroupB:thosewithnoformaleducationalqualificationsatall

• GroupC:thosepeoplewhowerebornintheUKbuthaddifficultyreadingEnglish.

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UsingfactoranalysisonaseriesofattributesfromtheBSFC,thestudydevelopedasetofskillsmetricsrelatingtofinancialcapability.Ontheskillsmetric‘makingendsmeet’,thosewithliteracyandnumeracyneedsweremorelikelytoberatedpoorly,withGroupAinparticularlikelytostruggleonthismeasure(28%wereofthisgroupwereinthelowestperformingquintile).

Financialliteracy

Asimilarpatternemergeswhenexploringthelinkbetweenmanagingday-to-dayandfinancialliteracy.AstudyrunbytheCommonwealthBankofAustralia(CBA)in2004wasthefirstofitskindtoexplorethelinkbetweenfinancialliteracyandoutcomesforindividualsinAustralia26.Itfoundthatlowerfinancialliteracyscoreswerecloselyrelatedtorespondentsbeingunabletopaytheirmobilephone,utilityandcreditcardsbills.Ultimately,thisstudydemonstratedthattherearesignificanteconomicbenefitstoindividualswithhigherlevelsoffinancialliteracy,intermsoflowerunemploymentratesandhigherincomes.

26MarcolinandAbraham(2006)Financialliteracyresearch:currentliteratureandfutureopportunities27HogarthandHilgert(2002):FinancialKnowledge,ExperienceandLearningPreferences:PreliminaryResultsfromaNewSurveyonFinancialLiteracy28HogarthandHilgert(2003):HouseholdFinancialManagement:TheConnectionbetweenKnowledgeandBehavior

Thereisalsostrongevidencethathighlightsalinkbetweenthosewhoscorehigheronfinancialliteracytestsandfollowingrecommendedfinancialpractices.HogarthandHilgert(2002)27findastrongcorrelationbetweenthosewhoscorehigheronfinancialliteracytestsandfollowingrecommendedfinancialpracticessuchaspayingallbillsontimeandhavinganemergencyfund.Inspiteofthis,thesameauthors28placedoubtonthecausalityofthisrelationship(thatanincreaseinfinancialliteracyandknowledgeimprovesbehaviour)arguinginsteadthatknowledgemayincreaseaswealthincreases,orotherfactorssuchasfamilyexperiencesandeconomicbackground,mayaffectbothknowledgeandbehaviour.

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Choosingproducts

Numeracy

Evidencesuggeststhathigherlevelsofnumeracycanpositivelyimpactonconsumerproductchoice.Forexample,astudyundertakenbytheInstituteforFiscalStudies29–focussingonlevelsofbasicnumeracyamongstacohortofpeopleapproachingretirementinEngland–foundstrongpositivecorrelationsbetweennumeracylevelsandproductchoicesaroundretirementplanning.Thesecorrelationspersistedwhencontrolledforotherfactorsincludingeducationandwealth.Inaddition,inAtkinson’sanalysisoftheBaselineSurveyofFinancialCapability(BSFC)(2007)30–outlinedindetailonpage12–shefindsallthreegroupslikelytoexhibitnumeracyneedstoperformlowerthanaverageonfinancialcapabilityscoresrelatingtochoosingproducts.

Financialliteracy

Asimilarpatternappliestotherelationshipbetweenproductchoiceandfinancialliteracy.Allianzrecentlypublishedastudy31lookingatfinancialdecision-makingacrossEurope.Theresearchmeasuredlevelsoffinancialliteracy(basedonfivequestions)fortenEuropeancountries,andanalysedthisagainstaseriesofproductchoices.Thestudyfoundthatthosewithhigherlevelsoffinancialliteracywereconsiderablymorelikelytorecognisethebestfinancialproduct–63%ofthemostfinanciallyliteratechosethebestfinancialproductinatleasttwooutofthreecases,comparedto22%amongthelessknowledgeablerespondents.Inaddition,ondebtliteracyspecifically,LusardiandPeter(2015)findthatthosewithlowerlevelsoftendtotransactin‘high-costmanners,incurringhigherfeesandusinghigh-costborrowing’.

29BanksandOldfield(2007)Understandingpensions:Cognitivefunctions,numericalabilityandretirementsaving30Atkinson(2007)Financialcapabilityamongstadultswithliteracyandnumeracyneeds31Allianz(2017)Whenwillthepennydrop?Money,financialliteracyandriskinthedigitalage2017report32VanRooij,LusardoandAlessie(2011)Financialliteracyandstockmarketparticipation

Decision-makingprocess

Thereisevidencetosuggestthatthosewithlowerlevelsofnumeracyand/orfinancialliteracyaremoreinclinedtobasetheirfinancialdecisionsonlessrationalfactors.Atkinson(2007)findsthatgroupslikelytoexhibitnumeracyneedswere‘lesslikelytohaveusedanyinformationtoinformtheirchoiceofproduct,ortohavecomparedkeyfeatures’.Furthermore,ataninternationallevel,HastingsandTejeda-Ashton(2008)focussedonhowworkersviewinvestmentfundsinMexico,inthecontextofitsprivatisedsocialsecuritysystem.Thefindingsdemonstratedthattheinvestmentchoicesamongstthosewithlowerlevelsoffinancialliteracyweremorelikelytobebasedoneasier-to-determinecharacteristicssuchasbrandname,overfeesandpastreturns.

Therearealsodifferencesintheadvicethatindividualsseekdependingonlevelsoffinancialliteracy.HastingsandTejeda-Ashtonfoundthatthosewithlowerlevelsoffinancialliteracyaremorelikelytorelyonemployersandword-of-mouthintheirinvestmentchoices.Indeed,womenandlow-incomeindividualsinparticular(groupsthattypicallyexhibitlowerlevelsoffinancialliteracy)weremorelikelytorelyonemployeradviceaspartofthisdecision-makingprocess.Conversely,inastudyfocussedonDutchadults,VanRooij,LusardiandAlessie(2011)32foundthat,whenaskedaboutthemostimportantsourceofadvicemakingimportantfinancialdecisionsforthehousehold,thosewhodisplayhighlevelsofadvancedliteracyare‘muchlesslikelytorelyoninformalsourcesofinformationsuchasfamilyandfriends,andmuchmorelikelytoreadnewspapersandmagazines,consultfinancialadvisors,andseekinformationontheInternet’.

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PlanningaheadThereisawealthofevidenceavailablefocussingonthelinkbetweennumeracy,financialliteracyandlong-termfinancialplanning.Moststudiespointtoastrongrelationshipbetweenhighlevelsoffinancialknowledge,financialliteracyand/ornumeracy,andeffectivefinancialplanning.

Numeracy

TheInstituteofFiscalStudiesexploredthelinkbetweennumeracyandsavingforretirementaspartofa2006report33.Theanalysisfocussedonthe2002waveoftheEnglishLongitudinalStudyofAgeing(ELSA)–arepresentativesurveyof11,400individualsinEnglandaged50andover.Thestudyfoundthatnumeracyimpactsonbothattitudestowardsandunderstandingofretirementplanning.Therewasapositivecorrelationbetweennumeracyandmeasuresofretirementsavingandinvestmentportfolios,evenwhencontrolledforothercognitiveabilityandeducation.Inaddition,numeracyiscorrelatedwithknowledgeofpensionarrangements,andwithperceivedfinancialsecurity,evenwhencontrolledforothercognitiveability,educationandthelevelofoverallretirementsaving.

Lusardi(2011)34focussesonhowspecificaspectsofnumeracyimpactonfinancialplanning.Shefindsthatunderstandingofinterestcompoundingislow,whichshearguesisconcerninggiventhatcalculationsaboutcompoundinterestformapartofmostfinancialdecisions.Thestudyfindsthatthosewhocannotdoa2%interestratecalculationaremuchlesslikelytoplanforretirementandaccumulatewealthmoregenerally,citingevidencefromtheUnitedStates,Russia,SwedenandtheNetherlands.

33InstituteforFiscalStudies(2006)UnderstandingPensions:CognitiveFunction,NumericalAbilityAndRetirementSaving34Lusardi(2011)Numeracy,FinancialLiteracy,andFinancialDecision-Making35LusardiandMitchell(2009)HowOrdinaryConsumersMakeComplexEconomicDecisions:FinancialLiteracyandRetirementReadiness36Bucher-Koenen,TabeaandLusardi(2011):FinancialLiteracyandRetirementPlanninginGermany37KlapperandPanos(2011)Financialliteracyandretirementplanning:theRussiancase.38BrownandGraf(2013)FinancialLiteracyandRetirementPlanninginSwitzerland

Financialliteracy

Therearevariousinternationalstudiesthatfurtherexaminetherelationshipbetweenfinancialliteracyandretirementplanning.Forexample,LusardiandMitchell(2009)35focusontheretirementplanningofAmericanadults,andfindthatfinancialliteracyishighlyinfluentialinthisprocess.Thestudyestablishedlevelsoffinancialliteracybyanalysingresponsestoquestionsonbasicfinancialconceptssuchasnumeracy,compoundinterest,inflationandriskdiversification.Analysingthisdata(throughamultivariateregression)againstthequestion‘howmuchhaveyouthoughtaboutretirement?’thedatashowedthatevenwithdemographicandsocio-economicfactorsheldconstant,financialliteracyisindeedinfluentialinretirementplanning.Inaddition,theanalysisfoundthatsophisticatedfinancialknowledgeisthemostimportantfactoroverothersinthisdecision-makingprocess.

Bucher-Koenen,TabeaandLusardi(2011)36explorethelinkbetweenfinancialliteracyandretirementplanningamongstGermanadults.Thestudymeasuresfinancialliteracybyaskingquestionsrelatingtointerest,inflationandrisk,andanalysestheresultsagainstself-reportedlevelsofretirementplanning.Thestudyfindsthatthosewhoanswerthefinancialliteracyquestionscorrectlyaremorelikelytohaveplannedforretirementand,afterrunningmultivariateanalysis,showsthatfinancialliteracyandretirementplanningarepositivelycorrelated.Similarly,studiesamongstindividualsinRussia37andSwitzerland38alsofindcorrelationsbetweenhighlevelsoffinancialliteracyandretirementplanning.

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Thereisalsoevidencethathighlightsalinkbetweenfinancialliteracyandinvestinginthestockmarket.Christelis,JappelliandPadula(2006)39focusonthelinkbetweenportfoliochoiceandcognitiveabilitybyfocussingonthreedomainsofcognitiveabilities:numeracy,verbalfluencyandmemory.Throughaseriesofregressions,thestudyconcludesthatallthreehaveanindependenteffectonthedecisiontoholdstocks(asthemultivariateanalysiscontrolsforeducation)and‘supportthehypothesisthathighercognitiveabilities,throughtheirassociationwithlowerriskaversion,lowerinformationcosts,orhigherperceivedSharperatio,raisestockmarketparticipation.'Inaddition,Lusardi(2011)40citesvariouspapersthatreachasimilarconclusiononthelinkbetweenfinancialliteracyandstockmarketparticipation.

39Christelis,D.,T.Jappelli,andM.Padula(2006)Cognitiveabilitiesandportfoliochoice40Lusardi(2011)Numeracy,financialliteracy,andfinancialdecision-making41SchagenandLines(1996)FinancialLiteracyinAdultLife:AReporttotheNatWestGroupCharitableTrust42Frederick(2005)CognitiveReflectionandDecisionMaking43AlmembergandGerdes(2011)ExponentialGrowthBiasandFinancialLiteracy

Demographicandattitudinaldifferences

Moststudiespointtowardsadifferenceinattitudestowardslong-termfinancialplanningatademographiclevel,witholder,wealthierandmoreeducatedindividualsmorelikelytotakeamoreactiveapproachtosavingandinvestments41.Furthermore,atadeeper,moreemotionallevel,thereissomeresearchtoindicatethatlessnumerateindividualsattachmoreimportancetoconsumerdecisionsintheshorttermoverlong-termfinancialplanning.Studieshaveshownthatindividualswhoarelessnumerateandhavelowercognitiveabilitywillbemorelikelytobeinfluencedbyshort-termcostsandbenefitsthanthoseoccurringinthedistantfuture42.Inaddition,astudyofSwedishadults43exploredlevelsofexponentialgrowthbias(i.e.underestimatingthefuturevalueofinvestmentsratherthanoverestimating)inrelationtolevelsoffinancialliteracybyaskingsurveyparticipantstopredictthelong-termvalueofaninvestment.Itfoundthatthosewithmoreadvancedfinancialliteracyskillswerelesslikelytoexhibitexponentialgrowthbias.

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Interventions

Theroleofnumeracyinfinancialeducation

Yetthemeritofincorporatingnumeracyintowiderfinancialeducationprogrammesisnotclear-cut.Asnotedearlier,manyother(oftenlessrational)factorsfeedintofinancialdecision-making,andithasalsobeendifficulttodrawacausaleffectbetweenfinancialeducationprogrammesandfuturebehaviour44.Inaddition,interestineducationprogrammesisoftenloweramongsttheindividualsthatwouldyieldthemostbenefitfromthem.Asnotedearlier,BynnerandParsons(2006)45demonstratethatthosewhohavemoreadvancednumeracyskills,arealreadymorelikelytowanttodeveloptheirskills.MeanwhileMeierandSprenger(2007)46findthatfuture-orientedpeoplearethemostlikelytoagreetoattendfinancialeducationprogrammes(agroupthataremorelikelytomanagetheirpersonalfinancesbetter),andthusconcludethat‘selectionintofinancialeducationcontributestoanoverestimationofpositiveimpacts’.

Therearealsoconcernsaroundtheformatfinancialeducationprogrammesshouldtake,andtheextenttowhichnumeracyshouldplayarole.Carpena,Cole,ShapiroandZia(2011)47considerthevalueofcombiningnumeracywithwiderfinancialeducationprogrammes.InastudythatfocussesontheimpactsofafinancialeducationprograminIndia(relatingtosavings,credit,insuranceandbudgeting),theyfindthatfinancialeducationhasapositiveimpactonchangingindividuals’awarenessofandattitudestowardsfinancialproducts.However,theauthorsconcludethatfinancialeducationhaslimitedeffectsinincreasingfinancialnumeracybutdoesinfluenceawarenessofandattitudestowardsfinancialproductsandfinancialplanningtools.Theythereforesuggestthat‘measuringfinancialliteracyshouldnotexclusivelyfocusonquestionsthatrequirehighnumeracy

44BrimbleandBlue(2013)TailoredFinancialLiteracyEducation:AnIndigenousPerspective45BynnerandParsons(2006)NewLightonLiteracyandNumeracy;ResultsoftheLiteracyandNumeracyAssessmentintheAge34follow-upofthe1970BritishCohortStudy46Collins&O’Rourke(2010).FinancialEducationandCounseling—StillHoldingPromise47Carpena,Cole,Shapiro,Zia(2011)UnpackingtheCausalChainofFinancialLiteracy48KaiserandMenkhoff(2016)DoesFinancialEducationImpactFinancialBehavior,andifSo,When?49InstituteforFiscalStudies(2006)UnderstandingPensions:CognitiveFunction,NumericalAbilityAndRetirementSaving

skills…makingindividualsandhouseholdsmoreawareaboutthedetailsoffinancialproducts,orchangingtheirattitudestowardspurchasingandrecommendingformalfinancialproductsandservices…maybeasimportant,ifnotmore,thanenhancingnumeracyskills.’

Effectiveinterventions

Manysourcespromotetheuseofnumeracyand/orfinancialeducationprogrammesinordertopositivelyinfluencedecisionsaroundchoosingproductsandfinancialbehaviourmoregenerally.Thereisevidencethatsuchprogrammeshavethedesiredeffect;basedonareviewofover100financialeducationprogrammesacrosstheWorld,KaiserandMenkhoff(2016)48findthatfinancialeducationhasademonstrablypositiveimpactonfinancialliteracy,aswellasapositiveimpactonbehaviour(thoughtoalesserextent).Theseprogrammesareoftentargetedatgroupswithlownumeracyneeds.Forexample,theInstituteofFiscalStudiesreport49(outlinedinfurtherdetailonpage17)findsapositivecorrelationbetweennumeracyandmeasuresofretirementsavingandinvestmentportfolios,andthereforerecommendstargetingrelevantinformationatlownumeracygroups(aswellaslowincomeandloweducationgroupswhoaremorelikelytohavenumeracyneeds).

However,aspreviouslymentioned,thosewhohavethelowestnumeracyskillsareoftenhardtoengageinsuchinterventionprograms.Therefore,thereisnoconclusiveevidenceacrosstheexistingliteratureastowhichtypesofinterventionsaremosteffective.Alltypesofprogramsappeartohavepositiveimpactonthosewithfairtogoodnumeracy;butanalysingwhicharemosteffectiveforthosewhoneedthemmostprovesdifficult.

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Currentevidenceandknowledgegaps-recommendations

Knowledgegaps

Itisdifficulttoascertainspecificeverydaybarrierstomanagingmoney;literatureoutlineswhatisstruggledwith(e.g.payingaphonebill),butnotwhy.Also,whilst‘short-termattitudes’arefrequentlymention,thesearenotspecificallyoutlinedandarecertainlynotexploredinanydetail.Furtherqualitativework,suchasface-to-faceinterviewsorethnographieswouldenableempiricalevidencetobegatheredthatcouldprovideunderstandinginboththeseareas.

Inaddition,thereisalsoadistinctlackofinformationonfinancialcapabilityandethnicity,withgender,incomeandeducationbeingthedemographicfactorsmostfocussedon.

Considerationsforadultbasicskillspolicy

Itisimportanttoacknowledgethatwhileverypoornumeracymakesfinancialliteracydifficult,itisnotnecessarilythecasethatrelativelypoornumeracyislinkedtopoorfinancialliteracy.Therefore,interventionsthataimtohelpindividualsunderstandtheideasbehindfinancialproductsmaybemoreappropriatethanthosethatteachnumeracyalone.Thismayalsohelpengagethosewhobelievetheirnumeracyskillstobelackingandarethereforeputoffexistinginterventions.

Itisalsoclearfromtheevidenceanalysedherethatfinancialconfidencemakesforgreaterfinancialcapabilityandbetterdecisions(andviceversa).Therefore,interventionsshouldaimtobuildfinancialconfidence,especiallyinunderstandingfinancialproducts.

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Conclusions

Numeracyandfinancialcapability

Therearevarioussourcesthatdemonstrateastrongcorrelationbetweennumeracyand/orfinancialliteracyandlevelsoffinancialcapability–thosewhoexhibitmoreadvancednumeracyand/orfinancialliteracytendtobemoreeffectivefinancialdecision-makers.Yetthereislessevidencethatshowsacausalrelationship,withbackground,generaleducationandwealthallfeedingintothiscomplexdynamic.Furthermore,lessrationalchoicefactorsarealsofoundtoplayasignificantroleinthefinancialdecision-makingprocess,particularlyforlessnumerateindividuals.

Atademographiclevel,severalstudieshighlightagendergaponbothnumeracyandfinancialliteracy,withmenconsistentlyperformingmorestronglythanwomenintheseareas.Thisimpactsonfinancialdecisions;forexample,womentendtobelesslikelytoplanforretirementandparticipateinthestockmarket.Therearealsoconsistentgapsacrossotherdemographics,withthosefromlowerincomes,minoritybackgroundsandlowerlevelsofeducationfoundtoperformmorepoorlyonnumeracyandfinancialliteracytests.

Financialconfidence

Lowerlevelsoffinancialliteracycanimpactonconfidenceonmakingfinancialdecisions,suchasmanagingmoneyandtakingoutfinancialproducts.However,thereisalsoadetrimenttobeingover-confidentinrelationtofinancialliteracy,withsuchindividualslesslikelytoseekprofessionaladviceandpotentiallymakingpoorerdecisionsasaresult.Furthermore,oneCanadian-basedstudyhighlightedthatconfidenceisabetterpredictoroffinancialoutcomes(relatedtoday-to-daymoneyanddebtmanagement)thanfinancialknowledgespecifically.Dedicatedfinancialprogrammescanhaveapositiveimpactinrelationtolevelsoffinancialconfidence,yetthosewhohavelowerlevelsofconfidenceintheirnumeracyskillsaretypicallylesslikelytowanttoimproveinthisarea.

Therearelargegapsbetweenperceivedandactuallevelsoffinancialliteracydependingondemographicandsocialbackground.Forexample,amongstolderagegroups,levelsofconfidencearehigherthanwarranted,whileyoungeragegroupsaremoreaccurateatself-assessingtheirfinancialknowledge.Womenarealsolesslikelytobeconfidentintheirfinancialcapability,andperhapsrelatedtothis,theyarelesslikelytobewillingtotakefinancialrisksmoregenerally.

Managingday-to-day

Thereisastronglinkbetweennumeracyskillsandday-to-dayfinancialmanagement.ThelatestSkillsforLifeSurveyrunbyBISshowsthatthosewithmoreadvancednumeracyskillsaremorelikelytocheckbillsorbankstatementsonaregularbasis.Similarly,severalstudieshighlighttherelationshipbetweenmanagingday-to-dayandhighlevelsoffinancialliteracy.AstudyfromAustralia,forexample,demonstratedthatlowerfinancialliteracyscoresarecloselyrelatedtopaymentofmobilephone,utilityandcreditcardbills.

However,theevidencetosupportthisrelationshipisusuallycaveatedbyotherfactors.Thosewhoarelesslikelytokeepontopofday-to-dayfinancialmanagementmaytakelessofaninterestgenerally,whilebackgroundfactorssuchasincomeandeducationcanplayarole,againunderminingthecaseforacausalrelationship.

Choosingproducts

Variousstudieshighlighttherelationshipbetweennumeracyand/orfinancialliteracyandproductchoice.Forexample,theInstituteforFiscalStudiesfoundstrongcorrelationsbetweennumeracyandproductchoicesaroundretirementplanning,evenwhencontrolledforfactorssuchaseducationandwealth.Thereisalsoevidencethatshowsthosewithlowerlevelsofnumeracyand/orfinancialliteracymakefinancialchoicesusinglessinformation,andbasethesedecisionsonlessrationalfactors.Ontheotherhand,thosewithmoreadvancednumeracyand/orfinancialliteracytendtousesourcessuchasfinancialadvisors,andmakebetterinformeddecisionsmoregenerally.

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Planningahead

Severalstudiesdemonstrateastronglinkbetweennumeracyand/orfinancialliteracyandplanningahead,particularlyinrelationtoretirementplanning.EvidencefromtheUKandinternationallydemonstratesapositivecorrelationinthisarea,whichpersistswhencontrolledforarangeofdemographicfactors.Inaddition,asimilarpatternemergeswhenfocussingonthelinkbetweenfinancialliteracyandinvestmentinthestockmarket.Generally,long-termfinancialplanningismorelikelytobeundertakenbyolder,wealthierandmoreeducatedindividuals,withthesegroupstakingmoreofanactiveapproachtosavingsandinvestments.Atanattitudinallevel,thereisalsosomeevidencethatindicateslessnumerateindividualsaremoreliketoconsidershort-termoverlong-termfinancialplanning.

Interventions

Thereareseveralstudiesthatdemonstratethepositiveimpactoffinancialeducationprogrammesintermsofadvancingfinancialliteracyandencouragingbehaviourchange.Manyoftheseinterventionsaretargetedatgroupsthatexhibitlowlevelsofnumeracyand/orfinancialliteracy.However,suchgroupstendtobelesslikelytotakepartinfinancialeducationinitiatives,thusunderminingthepositiveimpactsthatsuchprogrammescanhave.Thereisalsosomedebatearoundtheextenttowhichnumeracyshouldplayaroleinfinancialeducationprogrammes–onestudysuggeststhateducatingconsumersonpurchasingdecisionsandmakingthemmoreawareaboutfinancialproductsandservicescouldpotentiallyhavemoreofapositiveimpactthanfocussingonnumeracyskillsspecifically.

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ReferencesAllianz(2017)Whenwillthepennydrop?Money,financialliteracyandriskinthedigitalage2017report

AlmenbergandDreber(2011)Gender,financialliteracyandstockmarketparticipation

AlmembergandGerdes(2011)ExponentialGrowthBiasandFinancialLiteracy

Atkinson(2007)Financialcapabilityamongstadultswithliteracyandnumeracyneeds

BanksandOldfield(2007)Understandingpensions:Cognitivefunctions,numericalabilityandretirementsaving

BISResearchPaperNumber81(2012)The2011SkillsforLifeSurvey:ASurveyofLiteracy,NumeracyandICTLevelsinEngland

BISResearchPaperNumber267(2016)ImpactofPoorEnglishandMathsSkillsonEmployers:LiteratureReview

BrimbleandBlue(2013)TailoredFinancialLiteracyEducation:AnIndigenousPerspective

BrownandGraf(2013)FinancialLiteracyandRetirementPlanninginSwitzerland

Bucher-Koenen,TabeaandLusardi(2011):FinancialLiteracyandRetirementPlanninginGermany

BynnerandParsons(2006)NewLightonLiteracyandNumeracy;ResultsoftheLiteracyandNumeracyAssessmentintheAge34follow-upofthe1970BritishCohortStudy

Carpena,Cole,Shapiro,Zia(2011)UnpackingtheCausalChainofFinancialLiteracy

Christelis,D.,T.Jappelli,andM.Padula(2006)Cognitiveabilitiesandportfoliochoice

CommonwealthBankFoundation(2004)ImprovingfinancialliteracyinAustralia:benefitsfortheindividualandthenation.Keyfindings

ColeandFernando(2008)Assessingtheimportanceoffinancialliteracy

Collins&O’Rourke(2010).FinancialEducationandCounseling—StillHoldingPromise

FINRAInvestorEducationFoundation(2012)FinancialCapabilityintheUnitedStatesReportofFindingsfromthe2012NationalFinancialCapabilityStudy

Frederick(2005)CognitiveReflectionandDecisionMaking,inJournalofEconomicPerspectives—Volume19,Number4—Fall2005—Pages25–42

HastingsandMitchell(2011)Howfinancialliteracyandimpatienceshaperetirementwealthandinvestmentbehaviors

HogarthandHilgert(2002):FinancialKnowledge,ExperienceandLearningPreferences:PreliminaryResultsfromaNewSurveyonFinancialLiteracy

HogarthandHilgert(2003):HouseholdFinancialManagement:TheConnectionbetweenKnowledgeandBehaviour

Huddleston-Casas,DanesandBoyce(1999)ImpactEvaluationofaFinancialLiteracyProgram:EvidenceforNeededEducationalPolicyChange

InstituteforFiscalStudies(2006)UnderstandingPensions:CognitiveFunction,NumericalAbilityAndRetirementSaving

KaiserandMenkhoff(2016)DoesFinancialEducationImpactFinancialBehavior,andifSo,When?

KlapperandPanos(2011)Financialliteracyandretirementplanning:theRussiancase

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LusardiandMitchell(2007)Financialliteracyandretirementpreparedness:Evidenceandimplicationsforfinancialeducation.

LusardiandMitchell(2009)Howordinaryconsumersmakecomplexeconomicdecisions:Financialliteracyandretirementreadiness.

LusardiandMitchell(2011a)FinancialliteracyandretirementplanningintheUnitedStates.

LusardiandMitchell(2011b)Theoutlookforfinancialliteracy

Lusardi(2011c)Numeracy,financialliteracy,andfinancialdecision-making

MarcolinandAbraham(2006)Financialliteracyresearch:currentliteratureandfutureopportunities

MoneyAdviceService (2015)Measuring financial capability– identifying thebuildingblocksUnderstandingwhatdrivesorinhibitsconsumers’financialwellbeingandresilience

Palameta,Nguyen,Shek-waiHui,Gyarmati(2016)Thelinkbetweenfinancialconfidenceandfinancialoutcomesamongworking-agedCanadians

SchagenandLines(1996)FinancialLiteracyinAdultLife:AReporttotheNatWestGroupCharitableTrust,Slough,Berkshire

Sole(2014)FinancialLiteracy:AnEssentialComponentofMathematicsLiteracyandNumeracy

VanRooij,LusardoandAlessie(2011)Financialliteracyandstockmarketparticipation

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Stayintouch+44(0)2076277700Ihello@breakingblueresearch.comIwww.breakingblueresearch.com

ThisworkhasbeenconductedinaccordancewithISO20252,theinternationalstandardformarketandsocialresearch.

OurpoliciesandproceduresadheretotheCyberEssentialsecurityscheme.

ALISONHULME ASSOCIATEDIRECTOR [email protected] +44(0)2076277724

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Appendices

1.1 Appendix1:Detailsofstudiesreferredto

Allianz(2017)Whenwillthepennydrop?Money,financialliteracyandriskinthedigitalageAllianzsurveyed1000peopleineachof10westernEuropeancountries(Austria,Belgium,France,Germany,Italy,theNetherlands,Portugal,Spain,SwitzerlandandtheUnitedKingdom).Theprocesswasconductedonline,withasampleprovidedbythesurveyresearchcompanySSI(SurveySamplingInternational–www.surveysampling.com).Thesampleswererepresentativeofthepopulationofeachcountrywithrespecttoage,sexandgeography.

AlmenbergandDreber(2011)Gender,financialliteracyandstockmarketparticipationAlmenbergandDreberusedatafromthe2010consumersurveycommissionedbytheSwedishFinancialSupervisoryAuthority.Thedatawascollectedthroughatelephonesurveyofanindependentrandomsampleofapproximately1,300Swedishresidentsthatarerepresentativeoftheadultpopulation.

AlmembergandGerdes(2011)ExponentialGrowthBiasandFinancialLiteracyAlmenbergandGerdesusedatafromthe2010consumersurveycommissionedbytheSwedishFinancialSupervisoryAuthority,asabove.

Atkinson(2007)FinancialcapabilityamongstadultswithliteracyandnumeracyneedsAtkinson’sstudyisbasedoninterviewsfromtheBaselineSurveyofFinancialCapabilitycommissionedbytheFinancialServicesAuthority(FSA),nowtheFinancialConductAuthority(FCA).Interviewswereconductedface-to-facebytheBritishMarketResearchBureau(nowknownasKantar)betweenJuneandSeptember2005.Interviewswereconductedwith5,328peopleacrosstheUK,usingarandomlocationsample.

BanksandOldfield(2007)UnderstandingpensionsBanksandOldfieldusedthe2002waveoftheEnglishLongitudinalStudyofAgeing(ELSA),whichisasurveyof11,392individualsthatprovidesarepresentativesampleoftheEnglishpopulationaged50andoveron29February2002.

BISResearchPaperNumber81(2012)The2011SkillsforLifeSurveyTheSkillsforLife2011Surveyadministered25-minute-long,computerisedassessmentsinliteracy,numeracyandICTtopicstorespondentsduringtheirinterviews.Additionalinformationwascollectedfromrespondentsduringtheface-to-faceinterviewstohelpunderstandthedemographic,socialandmotivationalfactorsrelatedtobasicskills.Inall,7,230interviewswereconductedbetweenMay2010andFebruary2011.

BrimbleandBlue(2013)TailoredFinancialLiteracyEducation:AnIndigenousPerspectiveBrimbleandBlue’sstudytookaliteracyprogramsuccessfullyruninanumberofnon-indigenoussettingsandtailoreditintermsofthecontent,deliveryandlogisticsforthispurposeinAustraliaandCanada.Datawascollectedfromparticipantsandfacilitatorstoexaminetheoutcomesoftheprogramandtheefficacyofthetailoredapproach.

BrownandGraf(2013)FinancialLiteracyandRetirementPlanninginSwitzerlandBrownandGrafusedarepresentativesurveycovering1,500householdstodocumenttheleveloffinancialliteracyinSwitzerlandandtoexaminehowfinancialliteracyisrelatedtoretirementplanning.

Bucher-Koenen,TabeaandLusardi(2011)FinancialLiteracyandRetirementPlanninginGermanyThisstudywasbasedondatafromarepresentativeGermanhouseholdpanel.Itwasfirstconductedin2001bytheMannheimResearchInstitutefortheEconomicsofAging(MEA).Consecutivewavesofthesurveywereinthefieldin2003/2004andeveryyearsince2005.In2009,2,222householdswereinthepanel.Thedatawascollectedduringtheearlysummerof2009.

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BynnerandParsons(2006)NewLightonLiteracyandNumeracyThisstudydrewondatafromthe1958and1970Britishbirthcohortstudies,whichhavefollowedupindividualsthroughouttheirlives,withnewdataaboutthecohortmemberscollectedatregularintervals.TheNationalChildDevelopmentStudy(NCDS)hasfollowedupall17,000individualsborninasingleweekin1958.The1970BritishCohortStudy(BCS70),whichisthesubjectofthisreport,hasfollowedupall16,500individualsborninasingleweekin1970.ThetwomainpartsofthesurveycomprisedtheCoreInterview,whichwascompletedby9,665cohortmembers,andtheParentandChildInterview,whichwascompletedby2,846cohortmembersincludinginformationon5,207oftheirchildren.Thesesampleswerefullyrepresentativeoftheoriginalcohort.

Christelis,Jappelli,andPadula(2006)CognitiveabilitiesandportfoliochoiceThisstudyusestheSurveyofHealth,AgeingandRetirementinEurope(SHARE).Thesurveyhasdetaileddataonwealthandportfoliocompositionofindividualsaged50+in11Europeancountriesandthreeindicatorsofcognitiveabilities:mathematical,verbalfluency,andrecallskills.CommonwealthBankFoundation(2004)ImprovingfinancialliteracyinAustraliaAnationaltelephonesurveywasconductedwith5000Australiansaged16–65years,betweenAugust18andSeptember9,2004,usingComputerAssistedTelephoneInterviewing(CATI).

FINRAInvestorEducationFoundation(2012)FinancialCapabilityintheUnitedStatesReportofFindingsfromthe2012NationalFinancialCapabilityStudyThisstudyusesdatafromthe2012and2009NFCSState-by-StateSurveys,eachofwhichwerenationwideonlinesurveysofover25,000Americanadults.

HastingsandMitchell(2011)HowfinancialliteracyandimpatienceshaperetirementwealthandinvestmentbehavioursThispaperusesexperimentalevidencederivedfromthe2009ChileanEncuestadeProtecciónSocial(EPSorSocialProtectionSurvey)toevaluatehowfinancialliteracyandimpatiencepredictsavingandinvestmentdecisions.TheEPSisanationallyrepresentativepanelofrespondentsfollowedeverytwoyears,fieldedbytheUniversityofChile’sMicrodataCenterincooperationwiththeUniversityofPennsylvania.

HogarthandHilgert(2002)FinancialKnowledge,ExperienceandLearningPreferences:PreliminaryResultsfromaNewSurveyonFinancialLiteracyTheFederalReservecommissionedadditionalquestionsregardingahousehold’sfinancialknowledge,experience,behaviours,learningexperiences,andlearningpreferencesinthemonthlySurveysofConsumers.Thesesurveysmeasurechangesinconsumerattitudesandexpectationswithregardtoconsumerfinancedecisions.Eachmonthlytelephonesurveyof500householdsincludesasetofcorequestionscoveringconsumerattitudesandexpectationsalongwithsocioeconomicanddemographiccharacteristics.ThequestionnairewasadministeredinNovemberandDecember2001;thedatacontainsinformationfrom1000respondents.

HogarthandHilgert(2003)HouseholdFinancialManagementStudybasedonsamedataasabove.Huddleston-Casas,DanesandBoyce(1999)ImpactEvaluationofaFinancialLiteracyProgramThisstudywasbasedon738surveystoteachersintheUSusingthefinancialeducationpartofthecurriculum;then188studentandteachersurveys.InstituteforFiscalStudies(2006)UnderstandingPensionsThisstudyusedthe2002waveoftheEnglishLongitudinalStudyofAgeing(ELSA)whichisasurveyof11,400individualsthatprovidesarepresentativesampleoftheEnglishpopulationaged50andoveronFebruary292002.

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KlapperandPanos(2011)Financialliteracyandretirementplanning:theRussiancaseThisstudyanalysesresultsofadetailedsurveyoffinancialliteracyadministeredtoanationallyrepresentativesampleof1,400Russianindividuals.Thesurveyincludesquestionsonfinancialliteracy,retirementplanning,andtheuseofvariousfinancialproductsaswellasdetaileddemographicandsocioeconomicinformation.LusardiandMitchell(2007)FinancialliteracyandretirementpreparednessThisstudyusesdatafromthe2004USHealthandRetirementStudytoevaluatewhetherBabyBoomersarerelativelywellinformedaboutfinancialmatters.Specifically,itfocusesonsome1,700EarlyBoomersage51-56in2004.

LusardiandMitchell(2009)HowordinaryconsumersmakecomplexeconomicdecisionsThisstudywasbasedontheHealthandRetirementStudy(HRS),anationallyrepresentativelongitudinaldatasetofAmericansovertheageof50.Forthe2004HRSwave,LusardiandMitchelldesignedandadministeredaspecialmoduleonfinancialliteracyandretirementplanning.MoneyAdviceService(2015)MeasuringfinancialcapabilityThisstudyisbasedonthe2015AdultFinancialCapabilitySurveyfortheUK.Thiswasamajorpieceofresearchinvolvingover3,500interviewswitharepresentativesampleoftheUKpopulation,supplementedbyadditionalinterviewsinthedevolvednationsandamongstyoungerconsumersaged18-24.

Palameta,Nguyen,Shek-waiHui,Gyarmati(2016)Thelinkbetweenfinancialconfidenceandfinancialoutcomesamongworking-agedCanadiansThisstudyuseddatafromthe2014CanadianFinancialCapabilitySurvey(CFCS)

SchagenandLines(1996)FinancialLiteracyinAdultLife:AReporttotheNatWestGroupCharitableTrust,Slough,BerkshireForthisstudy,MORIcarriedoutaface-to-facesurveyof772peoplewhofellintofive‘atrisk’groups.

VanRooij,LusardoandAlessie(2011)FinancialliteracyandstockmarketparticipationThisstudyuseddatafromthe2005DNBHouseholdSurvey(DHS).DHSisanannualhouseholdsurveycoveringinformationaboutdemographicandeconomiccharacteristicsandfocusingonwealthandsavingdata.ThepanelisrunbyCentERdata,asurveyresearchinstituteatTilburgUniversitythatspecializesininternetsurveys.ThedatasetisrepresentativeoftheDutchpopulation,anditcontainsover2,000households.InadditiontousingdatafromthemaincoreoftheDHS,thestudyalsouseddatafromtwomodules(addedtothesurveyin2005and2006)whichweredesignedbytheauthors.

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Appendix2:QuestionsusedtomeasurenumeracyandfinancialliteracyinAllianz(2017)

LusardiandMitchellquestionstotestfinancialliteracy• CompoundinterestSupposeyouhad£100inasavingsaccountandtheinterestratewas2%peryear.Afterfiveyears,howmuchdoyouthinkyouwouldhaveintheaccountifyouleftthemoneytogrow?Morethan£102Exactly£102Lessthan£102Don‘tknowRefusetoanswer• InflationImaginethattheinterestrateonyoursavingsaccountwas1%peryearandinflationwas2%peryear.Afteroneyear,howmuchwouldyoubeabletobuywiththemoneyinthisaccount?MorethantodayExactlythesameLessthantodayDon‘tknowRefusetoanswer• DiversificationDoyouthinkthefollowingstatementistrueorfalse?“Buyingasinglecompanystockusuallyprovidesasaferreturnthanastockmutualfund.”TrueFalseDon’tknowRefusetoanswer LusardiandTufanoquestionstotestriskliteracy• Ifthechanceofgettingadiseaseis10percent,howmanypeopleoutof1,000wouldbeexpectedtoget

thedisease?• • If5peopleallhavethewinningnumberinthelotteryandtheprizeis2milliondollars,howmuchwilleach

ofthemget?

numeracy literature review - microsoft...1 technical doc 1 numeracy literature review[4].docx date...

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