For the launch of Financial Capability Week, Claire King, the Trust’s insight and innovation manager, explores the link between debt advice and financial capability.
As Financial Capability Week gets under way, it is a good moment for the debt advice sector to reflect on whether it is doing enough to support the crucial financial capability agenda.
The role of debt advice in increasing financial capability is key, and we make sure that we include a range of measures in our surveys of service users which provide us with information on how our advice really makes a difference to people’s lives.
This is reflected in our organisational Theory of Change model which emphasises the critical nature of outcome measures, including financial capability, rather than just monitoring levels of satisfaction amongst the people we help (important though this is).
One key performance indicator we use is the ability to manage finances longer term. In our most recent annual Impact Survey (asked of people who last used our service over 12 months ago) 89% of respondents agreed that they feel confident that “they are managing their money more wisely now” and 87% that “they feel more in control of their finances”.
We know that budgeting is a key ingredient of getting back on track with finances, being vital in preparing for self-negotiation with creditors and for staying free of problem debt in the future. Our advisers at National Debtline and Business Debtline ensure that all incomings and outgoings are accounted for, and a full budget is completed with people we help wherever possible.
It is therefore reassuring that 85% of our Impact Survey respondents agreed that they had become better at budgeting, with a clearer sense of how much money is coming in and going out each month or week.
A similar proportion of 87% agreed that they felt less likely to be in a similar situation again – evidence of how self-assisted debt advice can empower people by giving them the tools to take back control of their lives.
Never-the-less we recognise that there cannot be a “one size fits all” approach to financial capability or to supporting people to deal with their debts themselves. This is particularly true for people in vulnerable circumstances.
We recently commissioned the Personal Finance Research Centre at Bristol University to conduct more in-depth research into the experiences of people who contacted our service to see how the advice they received impacted on their ability to self-negotiate with creditors, and what longer term effects this had on their confidence, wellbeing and a number of other measures.
The research, which will be published in the next few months, identified four key ways in which advice helped support better money management:
- Better understanding of incomings and outgoings through Income and Expenditure sheet completion;
- Setting up new bank or savings accounts and routinely checking these;
- Adjusting spending to match income;
- Finding practical steps to cut spending – for example, cancelling mobile phone contracts or magazine subscriptions, and downgrading TV packages.
There was also evidence of new attitudes to borrowing and credit use, with a more circumspect view of taking on further debt among research participants who had debt problems related to consumer credit debt.
Changing people’s ‘mind-set’ through supported self-help can be a critical element in creating the foundations for financial resilience. Convincing people that they have the ability and confidence to self-negotiate and to ‘stand their ground’ – backed up by information from a trustworthy source – helps instil the belief that they are able to take actions to affect their situation.
In the words of one research participant who contacted National Debtline: “These financial problems feel overwhelming because you don’t know what you can do…So [receiving advice and follow-up information materials] meant even in my emotionally and mentally compromised state of mind, it wasn’t as daunting and overwhelming”.
The Trust’s Innovation Grants programme helps organisations which practice innovative techniques (such as nudge theory) for early intervention and debt resolution, where building resilience plays a central role. We evaluate outcomes from these projects over a 12 month period, and use our sphere of influence to disseminating the learning amongst our partners and stakeholders in the advice and financial sectors.
One of our Innovation Grant partners – Hyde Housing Group – trialed such an approach with new housing association residents aged under 35 (this age group being particularly likely to default on rent).
Using a behavioural economics toolkit to help Housing Group advisers frame money advice in a more positive way and increase the level of engagement with tenants, they were able to reduce the likelihood of people falling behind with their rent by 16% amongst the pilot group.
There is still a long way to go but projects like this point the way to more sophisticated ways of increasing people’s long term financial resilience. It is encouraging that greater focus is now being given to prevention as well as on advice from organisations like National Debtline which help people in problem debt to help themselves.
Find out more about Financial Capability Week here.