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FSA research reveals guidance problems

Managing director Richard Hobbs says the FSA’s own consumer research into financial capability shows that money guidance will not succeed.

He says: “What is the regulator doing setting up a financial capability project if it already knows it will not work?”
Published earlier this month, the FSA’s Financial Capability: A Behavioural Economics Perspective found that consumers’ financial capability depends largely on intrinsic psychological attributes.

It states: “If poor financial capability is mainly a matter of psychology, the information-based approach of the National Strategy for Finan- cial Capability is likely to have only a modest effect in improving outcomes.”

The report says financial education is not likely to have major lasting effects on knowledge and especially on behaviour. It concludes: “Overall, there is a lack of direct evidence that the National Strategy for Financial Capability will substantially improve long-term financial decision-making. Institutional design and regulation are probably far more effective than education, although crisis counselling may be effective.”

Hobbs says: “It is clear from the research that it is all very well to educate people but unless there is a buying opportunity then and there, they will not do anything about it.”

The FSA says money guidance is not about educating people but rather to provide assistance to people who have specific financial problems.

A spokesman says: “If the pilot goes well, hopefully, people will be able to use this service to get information and guidance about what to do next in certain situations.
“Money guidance fits within the banner of financial capability but it is too simplistic to lump them into one group. It is a separate entity.”

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