2016 IFIE / IOSCO Global Investor Education Conference 12-14 June 2016 Building & articulating value & return on investment of FC/IE efforts over time: The UK experience Helen White Head of Financial Capability The Money Advice Service (UK) www.fincap.org.uk / Enquiries@fincap.org.uk
“Value” & “Return on Investment” • How define for financial capability? • How measure for financial capability? • Investor perspective: • Why invest in fincap instead of something else? • Why invest in one fincap activity vs. another? • But what about impacts beyond the investor ? • What value & RoI will result from investing in fincap? Quantitative Qualitative Short term Long term The Economy Society Individuals / Households Businesses State expenditure Local authority costs 2
KEY MESSAGE 1: There are multiple ways of defining & measuring value & RoI for financial capability You need to measure from multiple angles & perspectives to engage multiple stakeholders 3
Common Measures of Financial Capability FINANCIAL WELLBEING Current Longer term Debt measures wellbeing financial security FINANCIALL Y CAPABLE BEHAVIOURS Managing money well Managing and preparing for day-to-day: life events: 1. Managing credit use 4. Building resilience 2. Active saving 5. Working towards goals 3. Keeping track FINANCIAL ENABLERS & INHIBITORS MINDSET 3. Controlled 2. Financial confidence 1. Attitudes to saving spending ABILITY 4. Financial knowledge CONNECTION 6. Financial engagement 5. Internet ease & access
How we will use these measures of financial capability • We will use only the 5 behaviour measures to measure the success of the UK Financial Capability Strategy: • Managing credit use • Active saving • Keeping track • Building resilience • Works towards goals • But we will also collect data on & monitor the wellbeing & enabler / inhibitor measures 5
Examples of how you could measure impact & value at different levels 6
2008 Thoresen Review Estimated costs & benefits of a generic money guidance service up to 2060 (Net Present Value) to be: • For users of the service • Over £15 billion • For the financial services industry: • Benefits: £3,612m-£5,514 • Costs: £390m-£832m • For the UK Government: • Benefits: £4,650-£6,000 • Costs: £390m-£839m • For society as a whole • £344m 7
Measuring benefits of increased financial capability to the Economy • MAS commissioned economic modelling & analysis of improved UK financial capability from an independent economic consultancy • Purpose: • to demonstrate potential economic gains which would result from a generalised increase in the population’s financial capability • This will: • inform more effective appraisal of the value for money of investing in activities designed to improve financial capability, & • help illustrate to stakeholders – including Government, business, financial services industry – the economic value of investing in activities to increase financial capability • We aim (hope!) to publish results autumn 2016 8
Methodology • Data from MAS 2015 Financial Capability Survey used to develop a Financial Capability Index (FCI) = 15 point scale to measure an individual’s capability • Individuals’ life events modelled to compare financial outcomes before & after an increase in their FCI score • Model takes sample of individuals & predicts how they will respond to various life events (e.g. marriage, buying a home, child, divorce, retirement) & impact on their financial outcomes • Uses official statistics on these life events across the population to ensure realistic • Repeats exercise with improved financial capability • Compares changes in how individuals respond to life events • Measures how much ‘better off’ they will be as a result of improved financial capability • Difference in outcomes by end of life aggregated, & weighted to reflect UK population • Model assumes universal increase in financial capability to produce a value for the overall benefit of improved financial capability to the economy 9
Impact on financial services • Financial services sector response to improvements in financial capability – & therefore impact on supply – is uncertain & difficult to model accurately • May lead to increased consumption of some financial products & efficiency gains from greater competition • May reduce conduct regulation / complaints / redress risks & costs for the industry as result of reduced mis-selling • May lead to reduced sector revenues as result of less borrowing, more consumer product switching • Results will be important in persuading financial services firms to support & participate in implementing the FinCap Strategy • We expect significant wider benefits of improved financial capability, including health, labour productivity, tax revenue, government spending • Work in progress to understand nature & scale of these benefits 10
Potential benefits of tackling financial capability through the workplace • Impact on physical health? • Impact on mental health & focus? • Impact on productivity? • Impact on recruitment, retention, loyalty? 11
Benefits of reducing over-indebtedness (as example of cost of poor capability) Estimated that currently 8.2 million people in the UK are over-indebted 12
Work by Step Change debt advice charity • Estimates that : • around 3 million people in the UK in severe problem debt • social & economic costs of problem debt to society = at least £8.3 billion. • 2014 review of social impact of its debt advice service, using “social return on investment” methodology • Benefits of reducing problem debt include: • Improved mental health • Improved physical health • Reduced health treatment costs • Reduced unemployment / increased employment • Reduced risk of losing home • Reduced risk of relationship breakdown • Reduced risk of children being taken into care • Reduction in crime • Reduced state welfare costs • Reduced costs for creditors 13
KEY MESSAGE 2: To achieve maximum value & return on investment You need to pilot & evaluate multiple Fincap activities to build evidence on what works (& what does not) Then direct resources of many organisations to activities & methods the evidence shows work 14
MAS ‘What works’ grant fund • £7 million fund to be awarded as grants to build 3 types of projects to be funded: evidence on what works in improving financial 1. Existing financial capability capability interventions: • All projects must robustly evaluate impact using approach & tools created by Money Advice Service Evaluate impact on users, effectiveness in • All funded projects must share results publicly via improving financial MAS Evidence Hub capability 2. Potential to Scale up: Evaluate extension of existing interventions - already proven to be effective, - to different target group or wider Will tell us what impact different types of • geographical area activities & methods financial capability & 3. New approaches: behavior, & how big the impact on individuals Develop, pilot & But more work needed to measure the value of • evaluate impact of new the impact, relative to costs, to determine return ideas on investment 15
KEY MESSAGE 3: Explore methods of achieving both social & financial value 16
Social investment Social investment is funding that is provided to generate both social & financial returns Social investors include specialist banks, funds, trusts, foundations & individuals Social investment is not a grant or a charitable donation; investors expect to get their money back, often with interest , as well as to see outcomes showing that the social good they interested in has been achieved Social investment can come in many forms and structures: Debt – e.g. loans or overdrafts • Equity – e.g. shares in a social enterprise • Quasi-equity – investor benefits through royalty • payments of a fixed share of future income
What are Social Impact Bonds? • Type of social investment • Form of outcomes-based commissioning of services with social benefits (‘payment by results’) • Investor provides upfront funding & takes financial risk • Commissioner agrees to pay return IF social outcomes are achieved • First launched in 2010 • 40+ worldwide, 32 in the UK • Variety of models • Still a relatively young market
What needed to make a SIB work ü Willingness to work in a payment for outcomes contract (level of risk taken by provider depends on the model) ü Clear & measureable outcomes, a robust way of measuring them & attributing success to the intervention ü Investor(s) willing to pay up front & take the (financial) risk of failure in order to deliver the outcomes in question ü Evidence good enough to convince them it is likely to work ü A ‘commissioner’ who is prepared to pay back at the end if the intervention is successful
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