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Putting the horse before the cart: Factors that influence financial capability and

effectiveness

Ms Victoria Vyvyan

Dr Mark Brimble

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• Introduction & background

• Theoretical framework

• Research

• Descriptive framework and factors

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Financial Literacy- Capability- Effectiveness

What comes first – the knowledge or the desire?- the knowledge of the intention?- the horse or the cart?

How much do we know about what influences financial behaviour?

What should be in the programs and resources that we design?

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Financial Capability• Multi dimensional• Influenced by a number of factors

- Macro economic- Socio economic- Demographic- Personal characteristics- Needs and wants- Life events- Consumer skills- Access to information

(Consumer and financial literacy taskforce, 2004)

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What Do We Understand About Financial Capability?

• Skills and knowledge

– Managing money

– Planning ahead

– Making Choices– Getting help (Personal Finance Research Centre, 2005)

• Behavioural factors– Unhealthy ways of thinking

• Effect of Factors outside of your control (AC Nielsen & ANZ, 2005)

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Behavioural

Beliefs

BackgroundFactors

IndividualPersonalityMood, emotionIntelligenceValues, stereotypesGeneral attitudesExperiences

SocialEducationAge, genderIncomeReligionRace, ethnicityCulture

InformationKnowledgeMediaIntervention

Normative Beliefs

Control Beliefs

Attitudes toward the behaviour

Personal Norm

Perceived Behavioural

Control

IntentionIntentionBehaviour

Theory of Planned Behaviour (Ajzen)

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Attitudes and Behaviour

• Theory of Planned Behaviour (Ajzen)– Human behaviour is influenced by three main

considerations• Beliefs about the outcome of the behaviour• Beliefs about the expectations of others• Beliefs about the presence of factors that may impeded or

facilitate ability to perform the behaviour

– These beliefs form attitudes, subjective norm and perceived behavioural control which can explain intention to perform a behaviour

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• TpB has been the basis of much of the attitude: behaviour research in social psychology and health promotion

• Other factors such as affect, time, experience, and self efficacy have been found by some studies to add to the explanatory power of the theory (Armitage, 2001; Ajzen, 2005)

• Some research in finance has utilised this theory – (Johnson, 2003; Weiner, 2004; East, 1993)

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What are the components of financial capability?

– What factors facilitate the development of financial capability?

– What factors inhibit the development of financial capability?

– What knowledge, skills and attitudes contribute to financial capability?

– What other factors contribute to the development of financial capability?

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• Focus groups– Financial counselors, financial planners, women,

general population, young people;– Using Nvivo to analyse text to identify concepts and

categories– 18 financial counselors in SE Queensland, in three

focus groups; (5 men and 13 women)– Discussion guide

– How would you describe someone who was effectively managing their personal finances?

– “What about someone who was not effectively managing their personal finances?

– What you think it would take for someone who was not financially effective to become financially effective?”

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Category Factors that promotefinancial capability

Factors that inhibitfinancial capability

Background factors

Family upbringing and childhood experiences

Family upbringing and childhood experiences

  Security of employment Insecurity of employment

  Security of location Insecure location

  Security of relationships Insecure relationship

  Life changing events  

    Insufficient income

    Gender – women

    Health problems – emotional and physical, addictions

    Availability of credit

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• Family upbringing– Bad decisions in the family can motivate desire to change

– Financial behaviour in the home is seen as the norm

– Siblings from the same family can be quite different

• Security– Employment, relationship, location – income & mental/emotional health

• Life changing events– Change in living arrangements (divorce, widowhood) can spill over into

other realms

• Income– Insufficient income impedes ability and motivation to change

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• Gender– Women vulnerable to money as control in relationships

– Baby bonus and exploitation

– Trust = Love = your pin number

• Health– Physical and mental health issues – carer issues, stress, costs

– Addictions

• Access to credit– Availability of credit and marketing of credit

– Expectation of credit card

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Attitudes   Spending as reward

  Responsibility Entitlement

  Live within their means Materialism

  Attitude to risk – willing to take risk

Attitude to risk – unwilling to take risk

  Desire for change  

  Future focus Present focus

  Concern about money Unconcerned about money

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• Entitlement– Others are responsible– I am entitled to have what others have

• Spending as reward for deprivation– Compensation for deprivation– Compensation for work/life stress

• Materialism– Consumption a measure of success– Perception that must be like others

• Living within your means– Determining wants and needs– Being frugal

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• Risk– Overly cautious or risk taking

• Change– Desire for change

– Anxiety and worry

• Focus– Future or present

• Concern about money– Necessary for change to occur

– Ambivalence

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Norms Influence of a partner Influence of a partner

  Presence of a mentor Absence of a mentor

  Social expectations Social expectation

  Influence of family and friends

Influence of family and friends

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• Influence of partner, friends, family– Working together – complimentary skill sets

– Vulnerability in relationship

– Attitudes and values

• Social expectations– Have it now

– Level of consumption is normal

• Presence of a mentor– Encouragement, motivation, support

– Sounding board

– Family, friend, financial counselor

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Perceived Behavioural control

Self confidence/esteem Lack of confidence/ self esteem

  Belief that they can change things

Belief they are Unable to change things

  Belief that they will prosper  

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• Self confidence and esteem

• Belief that things can change– Resignation to continual problems

– Role of financial counselor

– Able to identify and act on opportunities

• Belief that they will prosper– Optimism – glass half full

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Skills and Knowledge

Knowledge NOT important  

  Realistic about their cash flow Unrealistic about their cash flow

  Set goals and plan Have no goals or plans

  Ability to research  

  Understand numbers  

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• Cash flow management– Realistic estimation of expenses and income

– Realistic notion of purchasing power on income

– Any attempt at budgeting shows a desire to change

• Planning and goal setting– Goals provide momentum to move forward

– Achievement of goals contributes to self esteem and belief that things can change

• Numeracy skills and researching

• Knowledge– Not related to financial capability

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Conclusion

• To change behaviour we have to understand it.• First step is to identify the factors.• How important are these factors? Which of them

are moderators, and which help to explain financially capable behaviour?

• Development of the model and testing it.• Limitations – 3 focus groups, initial analysis only.