Help needed to guard against online scamsPosted on: 19 August 2016 by 50connect editorial
Think Tank calls for better understanding of how to improve the financial skills of older people to reduce the risk of scams
In an increasingly complex financial world, responsibility for financial decision-making is progressively being shifted onto the individual. Yet a new report, published by the International Longevity Centre UK, reveals we don’t know enough about how to help people be more financially savvy in their old age.
‘What works? A review of the evidence on financial capability interventions and older people in retirement’ was commissioned by the Money Advice Service on behalf of the UK Financial Capability Strategy. The report carried out an extensive scoping review to establish which financial education programmes designed to improve financial capability amongst older people are effective.
The report found that while users of programmes designed to improve money management generally report high levels of satisfaction and feeling more informed there is little evidence that these programmes have a positive impact on their financial behaviour.
The end of compulsory annuitisation has put more responsibility on older people to actively manage their retirement income. For some older people, managing money in a digital world poses significant challenges. Others find the challenge of managing debt in old age worrisome.
Speaking about the report findings, David Haigh, director of financial capability at Money Advice Service said: “This report highlights how little we know about how best to improve the financial capability of older people. Whilst there are a number of interventions targeted at older people, there is little reliable and robust evaluation of whether they are truly effective.
“Generally, research shows that older people are financially capable. However, they face challenges around low levels of digital literacy and lack of planning for long term care. Discovering what works and targeting effective interventions in these areas will ensure that older people are able to effectively manage their money throughout later life.”
A number of studies have found that financial capability, defined as a person’s ability to manage money well, both day to day and through significant life events, is an essential prerequisite for sound financial decision-making. People with higher financial capability save and plan more for retirement, invest in the stock market, choose cheaper mortgages, shop around for the best financial products and buy cheaper annuities. They are also less likely to be over-indebted and generally feel less anxious about their financial life.
Previous ILC-UK research has shown that of those aged over 55 with a private pension but not yet retired, only half understood what an annuity was “quite or very well”. Income drawdown was even less well understood. ILC-UK research has also revealed that older people have lower levels of numeracy than the young.
"We know that financial security is an important aspect of a good later life," explained Anna Dixon, chief executive of the Centre for Ageing Better. "Building financial capability among older people as well as those approaching retirement is an important part of ensuring that people are able to manage their money in later life."
“This report highlights the limited evidence on ‘what works’ to increase financial capabilities among older people in retirement. 12.2 million people are projected to face inadequate retirement incomes."
It is clear there is a need to increase levels of financial capability among older people, however as this research points out there isn’t enough evidence out there to identify the solutions that best deliver a learning experience that is backed up by a change in the financial behaviour of those planning later life.
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