It’s Talk Money Week this week – a week designed to break the taboo of talking about money and improve people’s financial wellbeing. We’ve asked the Fair4All Finance team to share their thoughts throughout the week on ‘if you could do one thing…’ to improve financial inclusion. First up is our Executive Director of Policy and Strategy, Sarah Porretta.
Sarah recently made the move from the world of financial wellbeing at the Money and Pensions Service to addressing financial inclusion at Fair4All Finance, and as she approaches the end of her first two months, we wanted to find out a little bit more about how she sees financial wellbeing and financial inclusion working together.
Is financial wellbeing a right or a privilege?
That’s a tricky one. I think the basis of human rights is the right to have access to the basic elements you need in order to be able to function in society. We know from the excellent work that Martin Coppack is doing at Fair By Design that there is a poverty premium – being poor costs you more. So we should look at anything that reduces that premium. So I see things like access to a transactional bank account as a right. Access to credit is for some people more difficult to get your head around as a right, as there can be consumer harm in credit to a greater degree than you would find in transactional banking, it can get bad press.
But I know that if you spoke to anyone at Fair4All Finance they would say that access to fair, affordable credit is a right: it is putting food in children’s stomachs, clean clothes on their backs, and giving them a bed to sleep in.
Those things are a human right, and affordable credit makes that possible for many families in the UK through the work that the community finance sector does. I believe that at a national level we should have as our goal financial wellbeing for all, and we should challenge ourselves to create a market where that is possible, where we address systemic barriers, and consumers are confident and motivated to interact with the market.
Financial inclusion and financial wellbeing. Which comes first?
The egg? No, the chicken!
Like the egg and the chicken, you cannot have one without the other. A highly skilled, motivated, confident consumer with a market not working for them, and products that don’t meet their needs does not get you where you want to be.
Likewise the perfect market, with disengaged unconfident consumers won’t get you there either. So you need both. In most propositions you need both financial inclusion and financial wellbeing – to a greater or lesser degree on both sides, for it to work. Pensions dashboard is a good example of where financial inclusion and financial wellbeing come together.
On the one hand you have this huge push to shape the market and the product so that consumers have a simple and accessible way to be in control of their retirement savings, but on the other hand you need a clever and engaging guidance journey to wrap around that product to ensure it drives good outcomes for consumers.
What are the similarities and differences between the Money and Pension Service (MaPS) and Fair4All Finance?
Well that is a brilliant segue way from the previous question. The lines aren’t as clearly drawn as this, but if you were to think of MaPS as focusing on the consumer’s skills and confidence and equipping them to make decisions in the market, and Fair4All Finance focusing on shaping the market, and developing or investing in product and proposition innovation, then that is a reasonably good delineation.
There is of course crossover in the middle – both organisations are interested in establishing the evidence base, and in innovation and behavioural nudges for example. When we wrote the UK Strategy for Financial Wellbeing, Sacha Romanovitch (Fair4All Finance’s CEO) and I discussed at length how the two organisations could work together on the Credit national goal and gave a great deal of thought about how the work of the two organisations could complement each other.
Which wellbeing and inclusion initiatives have proven successful, and what lessons can we learn from initiatives that were less effective to avoid repeating mistakes or unnecessary focus on specific areas?
The biggest mistake I see repeated over and over – and the wasted millions spent on this globally keeps me awake at night – is what I’d call the “field of dreams” approach: if you build it, they will come. I have seen this in the development of education modules sitting on retail banks websites and social media channels all over the world. I’ve seen it in public bodies designing guidance services. Time and time again people vastly underestimate the investment needed to engage people with financial education and products. Often the people that need your help the most will not come: you need to find and address the barriers to access and engagement, and be clever about how to overcome them.
A great example of this working well is the incredible journey that the team at Nest Insight, MaPS and other partners developing workplace savings approaches has been on. First, Nest Insight piloted an opt-in sidecar saving model underpinned by proactive engagement programmes by employers and the provider. If people wanted to start saving, they needed to sign up to do so. The result: 46% of people thought that the product would benefit them…but only 1% actually signed up.
So, to try to address the behavioural and structural barriers to getting started with saving that were shown in the first pilot, Nest Insight next explored an innovative opt-out model. In this approach people still have the choice whether or not to save, but the default is switched to support people who want to, to get started with saving. If an employee wants to save, they don’t have to do anything and will start saving automatically. It’s the people who don’t want to save who have to take action and opt out. And the results are striking.
Across three trials with employers SUEZ, the Co-operative Group and Bupa Care Services, savings participation jumped by a massive 50 percentage points. From very low numbers of employees saving before, they saw up to 7 in 10 employees saving! Only with the opt-out model do savings behaviours increase in line with people’s needs and intentions to save.
I think this shows that we need to try harder to find ways of supporting people who may be excluded from financial wellbeing solutions, by barriers like lack of time or low confidence, to get access to those solutions.
The theme of this year’s Talk Money Week is ‘if you do just one thing…’ – what’s one thing you will be doing this week / what one thing would you do to improve people’s financial inclusion and wellbeing?
If I had a magic wand, I would wave it and create a suite of accessible products that everybody in the country could access: a transactional account, savings product, insurance, a pension and of course affordable credit. This suite would need to be designed for all, and accessible for all, where appropriate these products could include defaults and nudges.
In this utopia, customers would have had the benefit of good quality financial education, and guidance and advice when they need it to equip them to be confident, and motivated.
So what will I specifically do this week: continue with my work, which is aiming at just that: writing the UK strategy for financial wellbeing at MaPS was once piece of the jigsaw. Moving across to Fair4All to address market shaping and work with the team to develop, invest and grow accessible products and services is the next step on that journey.