About financial capability (1)

1. Building resilience – and dealing with risksJim McCormickScotland Adviser, Joseph Rowntree Foundation

2. About financial capability (1) • Dilemma: how to get better outcomes with less money = reduce need/demand for crisis support • Financial exclusion is one pathway towards crisis, affecting those who can’t, find it hard or won’t access ‘mainstream’ financial goods/services • Financial capability: the ability and motivation to plan, seek information & advice and make use of it. Just one part of the story, but an important strand for reducing hardship.

3. About financial capability (2) • Low levels of financial capability can affect anyone. But those with assets and access to affordable credit can get by with only rough knowledge. • Financial capability works best as a shared responsibility: it applies to employers and service providers (banks and utilities as much as councils) as well as consumers

4. Getting by or struggling on? (2008)

5. Some recent trends (SHS 2008) • Overall 6% drop in households with any savings to 48% (1999-2008) • Single parents least likely to have savings (21%) • Most low-income households don’t use credit for purchases, and single person households are least likely to • But half of those not managing well and those without savings use credit for purchases • And the same groups are most likely to use credit for borrowing

6. Understanding risks better • Low financial capability is not the same as being poor: most say they are ‘getting by’ despite living in hardship • Nor is it necessarily about going without certain products or services • We need better ways to spot the risks e.g. - those who are struggling financially, have no savings and are using credit - those caught in the low pay-no pay cycle whose incomes are both low and unstable

8. Attitudes of the un-insured • Distinguish between previously insured and never insured • Uninsured in four broad groups: - The risk averse - The risk calculators - The risk resigned - The risk unaware

9. Dynamics of poverty • During 2004-07, persistent poverty affected 8% of adults, lower than in the early 1990s (12%). • Each year about one in three poor adults move out of poverty but further mobility is limited and many drop back into poverty in subsequent years. • Getting out of poverty: extra pay, higher benefit income or increased number of adults working. • Falling into poverty: drop in pay, benefits and other income; and risk for new lone parent households.

11. Recurrent poverty • Work as the best route out of poverty? • 64% poverty rate for workless couples versus 1% when both work full-time • BUT 70% of families who were persistently poor stay poor after someone gets a new job • JRF examined job insecurity and low pay • Identified barriers to escaping these • Labour market, structural, personal • And why employers operate this way

13. Contacts www.jrf.org.uk Twitter: @jrf_uk @JimMcCormick16