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Money LivesResearch for the Money Advice Service

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moneyadviceservice.org.uk

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It is possible 4

In summary 6

What makes someone good with money 8

Beyond skills and knowledge 12

The impact of life events 16

Research interventions 22

Case studies: Planning interventions 26 Substitution interventions 32

About the research 36

What next? 38

Contents

Note: names throughout this document have been changed to protect the identity of the individuals

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IT IS POSSIBLE To change people’s financial behaviour…

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However, this is only possible when time is taken to really understand the person and how they live.

To have an impact on an individual’s behaviour towards money, you need to look beyond their skills and knowledge into their attitudes, their motivations, and the opportunities they come across.

Our research suggests that it is possible to design interventions which increase levels of financial capability.

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IN SUMMARY

In the current economic climate, it is more important than ever that people are able to manage their money by making ends meet, keeping track and planning ahead.

Ipsos MORI followed 72 families over the course of a year, as well as interviewing a further 48 participants who had experienced a significant life event, to explore their money habits, attitudes and influences

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Attitudes, motivations and opportunities as well as skills and knowledge influence what we do with our money and how we feel about it.

The ability and willingness to plan ahead is key in determining how effective people are at managing their money. The ability to plan tends to be learnt from parents.

Preparing for a key life event, such as buying a first home, can be a major stimulation to people in developing long-term positive money habits.

Learning to cope financially with difficult life events, such as bereavement or divorce, can also have a long-term positive impact on people’s money habits.

It is possible to override people’s natural money management behaviours if they are:

given a clear outcome to work towards

able to access information about that outcome, such as why it matters, and the difference it will make to them

provided with a structure and the relevant tools to help them work towards the desired outcome

able to receive regular positive feedback on their progress and are not left feeling isolated

made to feel in control of their financial situation.

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WHAT MAKES SOMEONE GOOD WITH MONEYBeing good with money is not just about having the right skills and knowledge.

It also depends on attitudes and wider influences. This model can be summarised into three main areas: skills and knowledge; attitudes and motivations; and opportunity.

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Skills and knowledgeThese are the emotional or cognitive skills required to engage with financial management, and the knowledge required to find, understand and evaluate information to make informed decisions.

[buying a car] was cheaper than all going on the train

Andrea and Gary, 30, England

Andrea and Gary have four young children and are dependent on benefits.

Andrea is the financial manager of the household and carefully manages their limited income. The couple recently took out two doorstep loans to buy a car, following a death in Gary's family which meant several unexpected trips to London. The couple bought the car because "it was cheaper than all going on the train". However, Andrea did not understand APRs and did not realise how much they would have to pay back when they took out the loans. As a result, once they have finished paying back the loans they will have repaid nearly twice what they originally borrowed.

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Attitudes and motivationAttitudes are the underlying beliefs that may influence behaviour. They are often influenced by social norms. Motivation refers to the brain processes that direct behaviour, including both automatic (unconscious) and reflective (conscious and considered) mechanisms.

Several months before Christmas Jackie’s front room begins to look like an Aladdin’s cave as the piles of presents for her grandchildren begin to grow.

She keeps a record of what she’s bought in a book, with a page or more for each one. "Unless you’ve had a grandchild, you don’t know

the feeling that comes with it," says Jackie, "even more than your own child, with a grandchild there is this overwhelming feeling."

Jackie reflects on her own austere childhood and says she loves to be able to give them something different.

Jackie, retired, England

Unless you’ve had a grandchild, you don’t know the feeling that comes with it

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OpportunityThis refers to the factors that lie outside of an individual that may influence their behaviour. They may include social opportunity (i.e. the networks that people have, including their friends and family) and the physical opportunities to which they are exposed (for instance, the area they live in or the technology to which they have access).

Sam, 22, Scotland

A cabinet filled with scale models of haulage vehicles hangs on the wall in Sam’s family home, illustrating just how keen he is to follow in his father’s footsteps as an HGV driver.

As his father points out, he’ll need to move home to do so as there are no firms operating locally, and he’ll need a Class 1 driving licence. But Sam is denied the opportunity to do either of these things until he can get a job that will support a move and the

necessary training.

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The impact of these different areas is visible across different elements of good money management: making ends meet; keeping track and checking; and planning ahead.

THE IMPACT OF GOOD MONEY MANAGEMENT

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Making ends meetThe ability of the people we researched to ‘make ends meet’ was often reliant on whether or not people had the requisite skills and knowledge. It was also often driven by a deeply ingrained attitude which people had grown up with or learnt from family members, such as using spreadsheets to log their incomings and outgoings or, conversely, spending money with a ‘live for today’ attitude. Attitudes (and thereby behaviour) around money were largely a result of the upbringing they had, relating to positive or negative role models.

I still think I’m young at the minute, so what the hell.

Female, 21, Wales

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Keeping track and checking Attitudes are very important when it comes to ‘keeping track and checking’. For example, some people would avoid checking their balances at the end of the month because it made them feel bad about their financial situation, whereas others used mobile banking so that they could continually monitor how much they had to spend when they went shopping.

I’d be thinking: if I’m going out to have a nice afternoon, then maybe I don’t want to check my balance because if it’s worse than what I’d thought that would upset me for the rest of the day. So I don’t always want to check it because I’m thinking I don’t want to spoil my day.

The skills and knowledge required by participants to keep track of their finances were 'common sense' to most, and many also had the opportunity to monitor their finances carefully either at home online or at a local ATM machine.

Female, 29, England

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Planning ahead ‘Planning ahead’ was very much related to an individual’s attitudes and motivations, and the ability to foresee future problems. Older participants who had successfully planned ahead often talked about their parents encouraging them to be thrifty, not to spend more than they could afford, and to save for a rainy day. In this sense, planning ahead was deeply ingrained in their approach to finances. Even for these people, however, planning for events that might or might not happen, especially negative ones, was really challenging.

You actually don’t realise. You look at them all individually, thinking ‘yeah, we can pay for that, it’ll be alright’, we had no idea how many different payments we had committed to, all the things we’d bought with interest-free periods, all the mobile phone contracts, you don’t think about how much they add up to or how you’ll pay them when you don’t have an income.

Male, 46, Scotland

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THE IMPACT OF LIFE EVENTSWe know life events are important, firstly because of the potential impact on people’s financial situations but also because people are open to changing their money habits.

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In order to help us understand how different life events affect financial capability, this study included 48 in-depth interviews with those who had recently experienced one of eight major life events:

n leaving home for the first time

n buying a first home

n joining assets with a partner

n separating from or divorcing a partner

n losing a job

n struggling with debt

n living with poor health or needing long-term care

n the death of a partner

The key factor which influenced whether or not participants coped well financially during these events was the extent to which they had planned ahead. Those who had considered how their circumstances would change during and after events tended to cope better financially.

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The clearest example of the positive benefits of planning for life events was buying a first home.

While saving for a deposit and choosing a mortgage were often emotionally and financially demanding tasks, participants generally reported planning for them and coping well with them. The main reason for this was that buying a home was a positive outcome which they were motivated to work towards, often with another person.

This meant that participants rarely resented the money they put aside each month as they would visualise the long-term outcome rather than the short-term loss of disposable income. This act of saving often developed into a habit after they had bought their home.

Additionally, while choosing a mortgage was often felt to be complicated and daunting, the wealth of information available from friends, family and independent sources, as well as from lenders, meant that participants were able to build their knowledge on the subject before they made a decision, ultimately giving them greater confidence in their ability to handle the event.

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Feeling positive about the event in question was a key factor in the extent to which participants planned ahead.

Generally, participants took an optimistic view of the future and did not plan ahead for potential negative events, such as losing a job. Although most participants who had experienced a job loss said that they had received little notice, even those who had more than a few months’ warning did not tend to use this time to prepare for the event as they remained optimistic about their future.

Typically, participants who had lost their job reported that they did little to change their financial behaviour until they had been unemployed for a number of months because they believed that they would find work again quickly.

You never think you’ll be unemployed for such a long time, to begin with you think, ‘oh well, I could do with a bit of time off, and I’ll find something else soon’ but then you don’t and it doesn’t feel like a holiday anymore.

Male, 36, Scotland

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This often meant that they borrowed money to maintain their lifestyle until they found work or were refused credit or accepted that they needed to change their financial behaviour - which could take up to six months. To some extent, having an optimistic view of the future acted as a barrier to participants being able to cope financially as it meant that they were less likely to have savings to fall back on and were slower to act when their circumstances changed for the worse.

Being able to predict the event was also vital. Participants who had been diagnosed with a long-term condition or experienced the death of a partner often reported that they had no way of knowing it would happen and so no time to prepare for it. The impact of these events depended on the extent to which participants had been planning ahead routinely as well as the amount of support available to them immediately after it happened. Participants who had experienced bereavement, for example, were much better equipped to handle their finances after the death of their partner if they had taken an active role in financial management while they were alive and had put money aside to cover funeral costs. Those who were not in this position were faced with financial difficulties at an emotionally demanding time in their lives, sometimes meaning that they would have to figure out their financial standing, learn how to manage their money and also cover the costs for a funeral during a time of grief.

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However, while emotionally difficult life events often meant that participants struggled financially for a time, this experience tended to have a long-term positive impact on their financial capability.

Participants who had experienced significant debt or had needed to learn how to manage their money or change their financial management as a result of divorce, losing a job, poor health or bereavement, often became stringent financial managers, who were determined not to get into financial difficulties again. While these events are not always things that are willingly accepted or can be foreseen, if equipped with the information and support needed when they do occur, they can act as triggers to an improvement in financial capability.

I’d never even seen a bank statement or used a cash point before. We met when I was 17 and he did everything. It was really hard to know what to do, I was terrified when I left him but I knew I had to.

Female, 42, Northern Ireland

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RESEARCHING INTERVENTIONSAs well as giving insight on what influences the way people manage their money, this study aimed to explore how people's financial behaviours could be improved through the development and testing of interventions.

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Five interventions were designed to overcome specific behaviours observed in the research and to encourage participants to be more reflective about their financial management and choices.

The particular emphasis was on supporting people to keep track of their finances, live within their means and plan ahead.

Evidence of positive habit formation was the key indicator used to measure the success of the interventions. While all five interventions showed some positive impacts and success stories, only two were found to have been successful in helping participants to form a habit which may improve financial capability in the long term.

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Planning intervention: what's my potential to save?

The first of these was a ‘planning’ intervention which was designed to encourage participants to work towards a financial goal with the help of a budgeting tool. Participants who took part in this task were provided with a budgeting tool which they were asked to complete, update and monitor. The tool enabled them to monitor cash flow, identify their savings or debt-reduction goal and helped them to build a plan around this. While primitive compared to many tools available online, the simplicity of the tool as well as the focus on meeting a goal were felt to be two of the key elements of its success. Participants who completed the exercise reported savings or debt reduction ranging between £60 and £2,000 during the three month testing period.

You can actually see what you’re doing and it works it all out for you, which is even better. I do sit down and I do try and plan, but it was just easier on the sheet because it was more appealing and straight forward.

Female, 31, England

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Using the tool had an empowering effect for many participants who felt that it had given them a sense of control over their finances. Having everything in one place in black-and-white meant that participants had all the information they needed to make financial decisions and choices for themselves

The positive impact of using the tool was so great that even participants who only used it once described thinking about their finances differently and made changes – such as opening a savings account for their child – as a result. While budgeting tools are not a new idea, the principles of simplicity, linking day-to-day spending decisions to a financial goal and enabling a feeling of control over finances by presenting aggregate spending figures which can be updated over time, can be used to improve existing tools as well as inform the development of new ones.

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CASE STUDIES: PLANNING INTERVENTIONWhat's my potential to save?

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Jennifer lives with her parents and is currently working as an administrator for a local company. Jennifer has always thought about money in the short term and didn’t really understand the point in saving as she thought, ‘you could die tomorrow so what’s the point in saving?’

Over the past couple of years she has accumulated around £1,400 in credit card debt. Although she had always avoided planning her money and saving, Jennifer was positive about her experience of this exercise.

Over the testing period, Jennifer managed to reduce her credit card debt from £1,400 to £650. In addition to the £30 standing order she had already set-up, she worked some overtime and used this money along with a tax rebate of £100 to help pay off the sum she owed. She felt that the tool gave her some focus which encouraged her to stop spending money on things like clothes and to put everything she had spare into paying off her debts.

“[I feel] a lot better because at the back of your mind you know you owe that money and you know it’s dead money.”

The experience of using the tool successfully has led Jennifer to share it with some of her friends as well as feeling confident and motivated in being able to start saving for a deposit for her first home.

[I feel] a lot better because at the back of your mind you know you owe that money and you know it’s dead money.

Jennifer, 31, England

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Debby and Paul live with their three children in social housing and are benefit reliant. Their eldest son, James, has multiple learning difficulties and they receive a high rate of Disability Living Allowance to help the family with the costs associated with this.

Before doing the planning exercise, the family would withdraw each benefit payment as soon as it was paid and any money they had left over after paying for bills and shopping would normally be spent on things for the children, even if they did not need or want them.

"We get bits we don’t need...because the money was there you think, ‘oh we can treat the kids to a toy."

The couple’s habit of living month-to-month meant that when they were confronted by a large cost such as Christmas or a new car, they would rely on high-cost credit which would then be repaid over a number of months. When they first started the planning exercise, they were shocked by how much money they had spare each month after expenses, something they had never considered before.

"According to this we have £1,972 every month...we definitely don’t get that much...it definitely doesn’t feel like that much."

We used to take it all out but we know we don’t need to now. We leave £20 to £30 a week in there because we know we can afford to leave it in there.

Debby and Paul, 31, England

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Their computer broke down early on in the testing period which prevented them from continuing with the exercise but the realisation that their incomings were much higher than their basic outgoings had a profound effect on the way they thought about their finances. During the testing period they decided to open a savings account for their son James so that they could put some of the money they used to spend on treats aside for him for when he’s older. They also managed, with the help of a tax rebate, to save £500 to redecorate their living room by leaving between £20 and £30 a week in their bank account which they would never have considered before.

"We used to take it all out but we know we don’t need to now. We leave £20 to £30 a week in there because we know we can afford to leave it in there."

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Substitution intervention The second intervention which was found to have led to positive habit formation was ‘substitution’, which aimed to encourage participants to curb areas of expenditure they found difficult to control by substituting them with similar, but less costly, purchases; for example, substituting elements of their food shopping with cheaper alternatives.

These areas of spending were difficult for participants to control because they tended to provide a positive emotional reward. Therefore, although the participants said that they would like to spend less on these items, the emotional ‘hit’ they experienced when cutting back meant they felt they were going without more than just the item they had decided not to buy.

The substitution intervention was designed to target the participants' area of problem spending whilst acknowledging the need for the positive emotional reward by identifying a similar but less costly alternative which they could buy while still saving money overall.

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This intervention appeared to have potential for encouraging participants to take control of their expenditure by providing them with the skills and motivation needed to address areas of uncontrolled spending before they experienced financial problems as a result of this. Most participants who took part in this exercise reported some success but the extent of this mostly depended on the suitability of the alternative they chose. It was vital that participants chose an alternative which gave them instant gratification so they did not feel that they were depriving themselves. In some cases, participants had began to transfer the principles from the exercise to other areas of spending and reported feeling more in control of their money as a result. They also developed the habit of asking questions of themselves whenever they spent money. While difficult to implement in its current form, the principle of this intervention, to acknowledge that spending often provides an important emotional benefit which needs to be fulfilled, may be useful when designing services and providing advice about how to cut back and control spending.

I’ve told myself I deserve things for so long, that to deny myself was an affront ... [I’d think], ‘ it’s only £4, I may as well just have it.’ [The intervention] made me ask, ‘can I do without this? Is it really a bargain…will I use it over again and get value for it?'

Female, 25, England

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CASE STUDIES: SUBSTITUTION INTERVENTIONWhat could I spend less on, what could I have instead?

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Agnes and her husband Gordon are a semi-retired couple, living in a fairly affluent suburb of Glasgow. Agnes has been fully retired for ten years for health reasons. This has affected their income, although they still have enough to live comfortably.

Agnes became very enthusiastic about the substitution task and chose food shopping as the area in which she would like to save, rewarding herself with a scone now and again at a local cafe. She started with making small savings on a few items, but the desire to find savings became infectious and spread across a range of shopping. She visited “every bargain store in Glasgow” looking for the cheapest deals on dog food.

“It opens up a world of opportunity for you. It’s made me think differently about prices…I started with one or two things then took into different areas – it spreads.”

Although Agnes tended to spend all of the money she saved on treats for herself, she reported that the task showed her that she could get by on less and could quite easily cut her food and groceries spending by £200 per month without compromising on quality. As a result of this change, she reported feeling much more in control, stating that it has changed the way she shops. It kicked her out of her habits and has got her into a bargain-hunting mindset, which she finds she really enjoys.

It opens up a world of opportunity for you. It’s made me think differently about prices… I started with one or two things then took into different areas – it spreads.

Agnes, 59, Scotland

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Charlotte is a 25-year-old graduate who recently moved into a flat in London with her boyfriend. Charlotte is highly organised with her finances and although she has always been careful with her spending she tended to impulse buy cheap clothes.

This was something that she wanted to address as she felt that it conflicted with her ethics and her views on value. She chose to substitute her spending on cheap clothing for making a regular donation to charity, something she had been planning to set up for a while. The intervention made her feel “quite challenged” as she was not used to denying herself anything.

However, after a couple of months, Charlotte no longer felt that she was depriving herself and she rarely went into cheap clothing stores anymore, even to browse. The exercise ‘leaked’ into other areas of her life in small ways too. For instance, on one occasion she bought something cheaper than she felt she “deserved” for lunch and made a £5 donation to charity instead. This, in turn, prompted her to set up charitable giving at work, and she now makes regular donations to charity.

Charlotte, 25, England

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Successful interventionsThese interventions shared two key elements which seemed to have a vital influence over their success. The first was that both interventions helped participants to feel in control of their finances by giving them the tools they needed to make their own choices about their money. The second was that they included an element of reward, either by enabling participants to easily track their progress or to treat themselves, which meant that they were less likely to feel that they were being deprived and so more likely to continue. In cases where good habits were formed, control itself became the reward and participants reported feeling more positively about their finances as well as their ability to make choices for themselves.

The development and testing of the five interventions was intended to be a pilot feasibility study and as such there were limitations in what could be achieved given the small scale and length of testing time. However, the principles behind the successful interventions and the stories of the participants can be used to improve existing tools and support services as well as provide a basis for the development of new tools in the future.

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ABOUT THE RESEARCHThe report, based on the largest study of its kind, provides insight into the way people manage their finances, their attitudes and motivations towards it, and the key factors which influence their ability to make the most of their money.

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To enable the Money Advice Service truly to understand how people manage and think about finances and the influences to which they are subject as they do this, Ipsos MORI designed a multi-staged mixed-methods approach. The approach was largely ethnographic, meaning researchers immersed themselves in the lives of people across the UK. By spending many hours with people in their own homes, the research team was better able to investigate how money was managed on a day-to-day basis. There was also a focus on the impact of life events, such as getting married or losing a job, and how these impacted people’s financial capability. The research involved three key stages:

n inception stage – pilot interview and literature review

n ethnographic interviews with 72 families with four visits over the course of a year

n in-depth interviews with 48 participants who had experienced a major life event

Once we had built up a picture of people’s lives in relation to their financial behaviours, we worked with academic partners to design the five interventions, designed to encourage more positive financial behaviours such as regularly checking balances or paying more attention to incomings and outgoings. The researchers introduced the interventions to participants on the third visit and evaluated the effectiveness of them during our final session with them, three months later.

WHAT NEXT?

The Money Advice Service has published the full report online for stakeholders and partners to read and access, at moneyadviceservice.org.uk

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The Money Lives report will be also used as part of the evidence base for the Financial Capability Strategy for the UK which is currently being developed by the Money Advice Service in partnership with a wide range of organisations.

A combination of this study, quantitative research, responses to our call for evidence, a comprehensive mapping exercise of existing interventions and their effectiveness, and insights from international experience, will inform what works at improving financial capability and where resources should be targeted to address needs.

As a demonstration that we are committed to placing evidence at the centre of the strategy, we are convening an expert group to develop a common evaluation framework. The group will also serve to encourage the sharing of best practice and continue to discover what interventions work for different people and why.

In our own work this research is already impacting the design of our products and supports our focus on life events. The research helps us to deliver the best possible interventions, aimed at both driving immediate action and maintaining momentum for those already engaged in positive money behaviours.

Money Advice Service Holborn Centre 120 Holborn London EC1N 2TD © Money Advice Service March 2014 moneyadviceservice.org.uk