The Saving Gateway and Financial Education by phv84830

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									The Saving Gateway and Financial Education

Paper Presented at ippr seminar on ‘The Role of Financial
  Education in Asset-based Policies’, 25 February 2002

                      Chloe Flutter
            The Saving Gateway and Financial Education

                                     Introduction

As part of its asset-based welfare policy agenda the government have proposed the
introduction of the Saving Gateway. This policy “was proposed as an account
targeted at low-income households, delivering a strong incentive to save regularly
through the Government matching money saved in the account” (HM Treasury,
2001:1). The Saving Gateway will be piloted in 2002 and 2003 before being
introduced at a national level.
One of the three main purposes of the Government’s ‘strategy for saving’, of which
the Saving Gateway is a key component, is “providing clear, impartial information and
education towards greater financial literacy to support people in making the right
savings choices for themselves” (HM Treasury, 2001: 2). Consequently, the
Government recognises “the central role that financial education would have to play
in a successful Saving Gateway” (HM Treasury, 2001: 12). Having recognised the
important role financial education must play in the Saving Gateway policy the
government is now consulting on how best this can be achieved. This paper and
seminar aims to provide some evidence and answers for moving this debate forward.

People on low incomes face a number of barriers when they are faced with making
decisions about saving. The two key barriers are a) low levels of institutional
engagement and b) low levels of financial capability. Overcoming the first of these
barriers is part of a much broader debate, and wider government agenda, on
combating financial exclusion. The role that the Saving Gateway can play in
promoting financial inclusion is potentially very powerful but is not the focus of this
paper or seminar.

This paper examines the role of financial education in the Saving Gateway policy and
considers what factors contribute to the effectiveness of financial education
programmes. In doing so, it draws on experiences in the United States where
financial education has been an integral component in the success of Individual
Development Accounts (IDAs). It also examines British research, before making
suggestions for how financial education can best be incorporated into the Saving
Gateway.

In summary, this paper asks:
1. What is the role of financial education in the Saving Gateway? And does financial
    education need to be considered as distinct from financial information and
    advice?
2. What lessons can we learn from US experience of Individual Development
    Accounts?
3. To be effective in UK context, what content is needed, what medium works best
    and which provider might be most effective?
4. What should the pilots be testing in relation to the financial education element of
    the Saving Gateway?
5. When the Saving Gateway goes national, what existing sources and channels of
    financial education can be used to best advantage in the Saving Gateway?
6. Are new agencies or partnerships needed?
1. What is the role of financial education in the Saving Gateway?

The role of financial education in the Saving Gateway policy could be twofold:
    i.      Financial education as a tool to ensure the effectiveness of the Saving
            Gateway: Financial education will assist participants to use their Saving
            Gateway accounts in the most effective way and optimise the money
            saved. It will help participants learn how to make savings decisions, such
            as how much to save, when to save, and when to make withdrawals from
            the account. It will also help ensure the Saving Gateway will achieve its
            ‘gateway’ role of encouraging a regular and sustainable saving habit.

    ii.     Financial education linked to the Saving Gateway to promote wider
            financial literacy and financial inclusion goals. During the 5 year operation
            of the accounts, individuals will learn through active participation in a
            financial product about key financial concepts, the benefits of saving, how
            to deal with financial institutions and manage financial products, and
            improved financial planning.

The government breaks down the “wide range of different financial education and
information needs at the core of the Saving Gateway scheme” (22), into three
sections. The main informational and educational needs during each phase are
identified as the following:
    i.      Opening and pre-opening the account: publicity concerning the account’s
            existence and possible benefits; promoting awareness about eligibility and
            how to be involved; basic financial training to help participants with the
            decision to save; methods for saving; acquiring and processing
            information; and general financial management and decision-making
    ii.     During the account lifetime: financial planning to help with decisions
            concerning withdrawals and the rate of savings; assistance with setting
            objectives and long term financial planning; familiarising participants with
            mainstream financial products
    iii.    Upon maturity: further information on mainstream saving products and
            how to access them (eg: ISAs, pensions, investment and other products);
            personalised support through decisions about how to continue saving;
            information about alternative options for spending such as training and
            business start-ups
The government hopes that the education and information provided will equip
participants with the ability to make the ‘right’ saving decision in the future. It will be
intended to help people by educating them in how to acquire information, how to
process and analyse it and how then to make the best savings choice.
There is clearly a distinction between financial education, financial information and
financial advice. Delivering Savings and Assets for All discusses the role of ‘financial
information and education’ in a fairly generic way. It does draw out that individuals
need to both be able to acquire information (which raise questions about access to
financial information and institutions) and to process that information (which requires
certain levels of financial literacy/capability.)

The division of the policy’s financial ‘information and education’ needs into three
phases makes no distinction between information, advice, education nor outreach. It
could be argued that the first stage identified above will primarily necessitate the
provision of information; that the second stage identified will be where education is
most important and the final stage will be where good advice will be most crucial.
Although this is an oversimplification it does highlight the need for a better
understanding of where education, advice or information is required.

A further factor is the nature of the advice that is needed. As we will see from the US
evidence on Individual Development Accounts, advice is given on how best to spend
funds in relation to what is best for individuals’ future welfare. This is not strictly
financial advice but more ‘welfare advice.’

It is not easy to draw hard distinctions between education, information and advice
(because they potentially overlap) but understanding these distinctions better inform
what should be provided, how it should be provided and who is best to provide it. It
has an important bearing on key aspects of provision of the Saving Gateway. In this
paper we focus on financial education and by this we mean how to improve levels of
financial literacy and capability through the Saving Gateway.

Question: Is it important to clearly distinguish between education, information and
advice? How can this distinction be drawn?



2. What lessons can we learn from US experience of Individual
   Development Accounts?

While there are important differences, Individual Development Accounts (IDAs) have
many similarities with the proposed Saving Gateway. They provide a useful source of
information about how best to incorporate financial education.

IDA programme characteristics
IDAs aim to help people build assets and to increase long-term well-being and
financial self-sufficiency. As is planned for the Saving Gateway, financial education
is a key component of the IDA policy. Indeed for holders of an IDA, attendance at
financial education classes is compulsory and if people do not attend then they will
be removed from the programme.
In the US, the way IDAs are provided varies between locations and across States.
They are provided by a range of bodies including community-based organisations
and employers, as well as through partnerships between government, employers,
financial institutions, educational institutions and community organisations. By
contrast in the UK, when the Saving Gateway is introduced nationally the
government plan to use a single provider. This will mean that delivery could be more
centralised. The government has suggested that the financial education component
will also be centralised under one provider because this will have the advantage of
‘simplifying’ its provision (HM treasury, 2001: 19). However, they do suggest that the
single provider could be a consortium of business and/or other organisations and this
could include a network of local agents. This difference between IDAs and the
proposed Saving Gateway requires policy makers in the UK to ask additional
questions about how to ensure financial education can be provided throughout the
country.
There is also one other important difference between IDAs and the Saving Gateway.
IDAs incentivise people to save for particular uses – for example micro enterprise,
education or home ownership. In contrast the Saving Gateway will not restrict what
people are able to spend the accumulated funds on. It is however designed to
encourage and incentivise people to continue saving and investing; there is therefore
a different type of advice needed in deciding what to spend funds on. This difference,
and other more subtle differences need to be borne in mind when and trying to learn
lessons from the US experience.

Findings from the American Dream Demonstration
Most of our knowledge of American IDAs has come from the evaluation of those
programmes in the American Dream Demonstration which ran from 1997 to 2001.
Fourteen separate IDA programs exist under the ADD banner. As mentioned above
they vary considerably in their exact nature. They can variously be operated by
community development organisations, social service organisations, banks and credit
unions, housing development organisations or collaboratives of community-based
organisations (Schreiner et al, 2001: 23). As of June 30 2000, 2,378 people had
taken up the opportunity to open an IDA account under the ADD program (Schreiner
et al, 20001: v). Most people were women (80%), approximately half were African-
American (47%) and nearly all participants earned less that 200 percent of the US
poverty line1 (88%), with a fifth under 50 percent of the poverty line (21%) (Schreiner
et al, 20001: viii). However, in terms of their level of education, IDA participants
tended to be well educated for people on their level of income, with 85% having
completed high school and a quarter having some form of college education
(Schreiner et al, 20001: ix).

Financial education component
An important part of the assistance given to IDA holders is financial education.
Undertaking financial education is mandatory for participation in all 14 IDA programs
and failure to do so will result in being removed from the programme. However, the
type of financial education provided and how many hours are required vary between
programmes. Furthermore, the stage at which participants were required to take
classes also varied. Some programmes required people to attend financial education
classes before the IDA was opened while others requiring it only before people
withdrew some of the funds.
The chief aim of financial education in the IDA scheme is “to make people more
aware of choices they might make and of the probabilities of possible consequences”
(Schreiner et al, 20001: 107). To achieve this aim, two types of financial education
are offered:
i.      General financial education:
        Examples of topics covered include how to make a budget and how to
        manage money. Classes also incorporate psychological strategies (changing
        minds) and behavioural strategies (changing actions and consumption habits)
        aimed at helping participants develop a saving habit (eg: some programmes
        use the slogan ‘Pay yourself first’ to make participants think of their monthly
        saving as a bill paid to themselves).
        The general financial education component also encourages participants to
        look into the future and focus on long-term financial decisions, for example by
        asking people to think about the long-term benefits of home-ownership versus
        renting and post-secondary education. This is done through teaching ‘goal-
        setting’ and skills for comparing current choices and future opportunities. In
        many ways this is more than financial education and is more a kin to ‘welfare
        advice.’
        Another component of this general financial education focused on developing
        the understanding of IDAs themselves. The ‘rules’ of IDA accounts were

1
  The US official poverty line is an absolute income level, not one which is relative to the
incomes of the remainder of the population as is generally used in the UK.
         taught to so that participants could optimise the benefits of their involvement
         in the programme.
ii.      Asset-specific financial education:
         This element of the financial education would be different in the UK context.
         In the US, it is about educating people about the spending of the asset on one
         of the restricted uses. Asset-specific education helps participants plan how
         they go about these activities through, for example, selecting and applying to
         education and training courses, dealing with real-estate agents and loan
         providers, business advice and advice with pension investment. For example
         it might include one-on-one counselling ensuring that participants are aware
         of and able to meet future financial requirements of mortgages or other loans.
         In the UK, it would be about helping people make a decision, not from a
         restricted set of options, but between a wide range of spending or saving
         options.
Apart from one-on-one counselling for particular issues, most of the financial
education is provided in a classroom style environment. Classes are usually small,
with under 15 participants and the ‘ideal’ length of a class is considered to be one to
two hours long, although the length and frequency of classes varied considerably
between individual programs (DOLETA, 2001: 10).

The impact of financial education on saving behaviour
The average participant in the ADD programme attends 10.5 hours of financial
education throughout the whole life-span of having an IDA. The evaluation thus far
has examined the correlation between the quantity of financial education and savings
outcomes. By comparing the relationships between the average net monthly deposit
(ANMD)2 and deposit frequency3 with the number of hours of financial education
attended, this study found that this average amount of financial education had a
significant effect on savings outcomes.
Looking first at the relationship between the quantity of financial education received
and the amount saved, the study found that savings increased after attending
financial education. The amount saved rose sharply during the first twelve hours of
financial education, but plateaued thereafter. This increase in savings translated into
a $1.24 increase in AMND for each additional hour of financial education received
after the first hour and a 56c increase in savings for the seventh to twelfth hours.

    Hours of financial       AMND          Change in         Deposit         Change in
       Education              ($)          deposited       frequency         frequency
                                           amount ($)          (%)               (%)
             0               $8.01            $6.71             39              0.06
            1-6              $20.38           $1.24             57              0.02
          7-12               $32.55           $0.56             64              0.02
          13-18              $26.88          -$0.70             60             -0.004
          19-35              $30.48           $0.54             58                0
         All ADD             $25.42             -               58                -
                                                                 Source: Clancy et al, 2001
Similarly, the frequency with which people made deposits also rose after financial
education. The percentage of months during which people made a deposit rose from
39% with no financial education to 57% with one to six hours and peaked at 64%

2
  ANMD is defined as deposits plus interest minus unmatched withdrawals, divided by the
number of months participation (Clancy, et al, 2001: 10).
3
  Deposit frequency is defined as the number of months with a deposit (excluding interest)
divided by the number of months of participation (Clancy, et al, 2001: 10).
again after seven to twelve hours. This corresponded to a 2% increase in deposit
frequency for every hour of financial education after the first hour and up until the
twelfth hour.
This data has limitations. All hours of financial education in this analysis are treated
the same and no account is taken of the different content and quality of provision.
Overall though the benefits of financial education do appear to peak after twelve
hours. The diminishing returns from financial education could be for two main
reasons. Firstly, it could simply be that people on low-incomes have a finite limit on
how much they can save and that on average this is reached after 12 hours of
financial education. Alternatively it might not be that people exhaust their ability to
contribute to an IDA, but that education simply stops having a significant effect on
people.
Two caveats to these results should be also noted. First, participants in the IDAs
chose to take part and, hence, were a self-selected group of people who wanted to
save before they entered the programme. Second, much of the US work assumes
that the more the saving the better the outcome. It is possible to envisage the
optimum level of saving not as the most possible but the most appropriate and
affordable level possible. Some of the US research fails to consider what the
individuals might have sacrificed in order to be able to achieve their desired level of
savings.
Even given these caveats, policy makers in the UK need to note the overall finding in
the US that “financial education had sizeable effects for the poor” when it was
incorporated with specifically targeted savings accounts (Clancy et al, 2001: 15).
They found that even after only a short amount of financial education, people were
able to increase the amount they saved and the frequency at which they saved it;
helping low-income earners create both financial assets and a savings habit.
Question: What are the limitations of the IDA experience for helping policy
development in the UK?

Question: Should financial education be a requirement of the Saving Gateway?


The impact of financial education in other American saving programmes
A second American savings policy that incorporates a financial education component
is 401(k) self-directed pension savings plans. Research has been carried out into the
effectiveness of different types of education run in conjunction with these plans. This
too can provide some relevant findings for the Saving Gateway, particularly on
questions about the choice of provider and on the medium for financial education
programs.
One overall finding in this research has been that the most effective providers of
financial education in the case of 401(k) plans are employers. It has been found that
employer-provided education has a significant impact of savings outcomes.

Participation rates in 401(k) plans were 12% higher in companies offering financial
education and 20% higher amongst those within these companies who attended the
seminars (Bernheim and Garret, 1996). As for the amount saved, financial education
resulted in people increasing savings of all types by 1.7 percent. One explanation
suggested for these results for employer based programmes is that employees trust
the information employers provided, especially compared with similar seminars run
by financial institutions.
Other research has looked at the method for providing financial education to 401(k)
pension participants. The most effective method appears to be through employer-run
seminars. One report concluded that these “seminars are generally associated with
significantly higher rates of participation and contribution” (Bayer et al, 1996: 26),
especially when provided on a frequent basis. What is more, the impact of financial
education seminars is greatest amongst low-income earners. Importantly they also
found that written material is a highly ineffective medium for financial education in the
context of 401(k) pension plans. In their study, they are “unable to detect any effects
of written materials, such as newsletters and summary plan descriptions, regardless
of frequency” (Bayer et al, 1996: 1).
Together, these results show that both the choice of medium and provider is highly
important in the provision of financial education. Employer-sponsored seminars were
the most effective, especially amongst low-income earners, at increasing both
participation rates in the pension plans and contribution rates by plan participants
(Bayer, Bernheim and Scholz, 1996; Bernheim and Garret, 1996).
Question: Do the US findings from research on 401k pensions provide lessons for
the Saving Gateway?


3. To be effective in UK context, what content is needed, what medium
   works best and which provider might be most effective?

The first and most important point to draw from US experiences with IDAs and
401(k)s is that the effectiveness of savings policies targeted at low-income earners is
increased considerably when financial education is incorporated. This finding
supports the Government’s decision to include financial education as an integral part
of the Saving Gateway scheme. Education will necessary to achieve the aim of
‘encouraging people to develop a regular and sustainable saving habit’.
The second point to drawn from the American findings concerns how financial
education is provided. Here, three characteristics of financial education programmes
prove particularly important in determining their effectiveness. These are the content
of what is taught, the medium through which financial education is provided and who
provides the education.

What should the content of financial education be?
Before content of financial education can be discussed, we first need to think about
what level of financial capability/literacy is needed in order to make informed
decisions about saving.

Question: How do we measure the success of financial education and what level of
capability do people need?

The US experience highlights the importance of effective communication in financial
education programmes (Clancy et al: 2001). It also suggests that what constitutes
effective varies considerably between groups. Researchers in the US have identified
three specific challenges to effective communication which arose in the ADD
program:
i.     Language and the use of plain English: It was essential that language used is
       simple and non-jargonistic: “the curriculum must translate the abstract and
       complex language of finance into concrete and simple terms, yet convey the
       correct message” (Clancy et al, 2001: 7).
ii.    Variations in Literacy: Education programs need to account for a large range
       in literacy and education standards, including differing levels of numeracy and
       fluency in English.
iii.   Cultural Differences: It was found that “without proper attention to cultural
       differences, financial-education messages may get lost in cultural gaps”
       (Clancy, et al, 2001: 7-8). In the case of IDAs under the ADD scheme,
       specific curricula were designed for various target groups including women,
       ‘battered women’, Native Americans and children.
A further important consideration when designing the content of financial education
courses is having a flexible curriculum that can be pieced together in a variety of
ways. ‘Picking and choosing’ between modules was an important way in which
instructors in American examples adapted courses to the particular needs of
individual groups (DOLETA, 2001: 5).

Returning to the lifecycle of the Saving Gateway mentioned above, there are
questions about what different from of education could be provided at different stages
in the life cycle of the account. It was suggested above that education (as opposed to
advice and the simple provision of information) would mainly be confined to the
period while people are saving. Yet there might still be differences of content in the
financial education as the account matures. Financial education soon after the
account is opened may be focused mainly on the workings of the Saving Gateway
itself and how to access and use information. As the account matures a greater
emphasis on general financial literacy could be more relevant and then as the
account reaches the end of its life span education focuses on future spending options
might be appropriate. Any educational programme must account for the different
needs people have over the five years of having the Saving Gateway.

Indeed this raises a question about whether the educational element of the Saving
Gateway should be confined to pure financial education or whether it should be
broader ‘asset education’. The restrictions on the uses in the US makes non-financial
education more important. However, despite the lack of restrictions it is possible that
education about a range of options for investing the accumulated funds could be
important.
In the US the importance of education being culturally appropriate has been
stressed. This should be borne in mind in the UK. The education provided should be
sensitive to different ethnic minorities’ cultures and religious beliefs. This also opens
up a broader question about the provision of education being flexible to different
needs. It has been suggested in the US that there are certain groups who are more
at risk of failing to use IDAs and even dropping out of the schemes. They are often
those who face high transaction costs when depositing money and/or have significant
debt before they open an account. It might be possible, particularly at a local level to
identify such high-risk groups and target extra support at them (Schreiner and
Sherraden 2002).

Question: Should educational classes include at different stages in the accounts life
cycle?
Question: Should education be confined to merely financial education or should
education cover broader ‘asset-education’ or ‘welfare education’?
Questions: How can people with particular needs be identified and the educational
delivered adapted accordingly?

What medium should be employed for the delivery of financial education?
In IDAs most financial education is delivered through a classroom style environment.
An advantage of using this medium for financial education is that it provides
participants with considerable peer support and the opportunity to learn from others
in similar situations to their own. It has been suggested that the externalities caused
by the classroom environment are extremely useful: “Like any group of students, IDA
participants can learn a lot from each other. Because financial education brings
participants together, they may produce social capital as a by-product. The class
becomes a reference point for a world view in which saving is the norm.” (Schreiner
et al, 20001: 110)
However, the way in which groups are brought together to participate in financial
education classes is important because of the sensitivity of the issues discussed. An
American Government study found that “Talking about financial issues can be very
emotional for a lot of people, so it’s much more comfortable to do with a group of
peers they already know and have bonded with than with a bunch of strangers”
(Kristin Currin quoted in, DOLETA, 2001: 7). Consequently, it might be appropriate to
encourage the use of existing groups for the delivery of financial education, such as
church groups, training programs for welfare recipients and ‘job clubs’ and job
readiness programs. Using existing groups also provides ‘captive audiences’ and
overcomes problems with attendance experienced with stand alone classes.

The US experience suggests that classroom/workshop provision of financial
education is the most effective. It appears that the simple provision of paper-based
information should not be seen as a substitute for the provision of financial education.
A number of organisations currently deliver financial education in this way. One
notable recent example has been a shift of emphasis among money advice agencies
towards greater proactive action to increase financial literacy. Though most of these
are within schools and provided for children some are targeted at adults. It also
highlights the importance of who delivers the education – they need to be well trained
and have the respect of account holders.

There are disadvantages with using a classroom setting as the medium for conveying
financial education. These include problems with finding time to participate,
inadequate access to child care, transport problems and in some cases a lack of
understanding for why financial education is important and relevant (Schreiner et al,
2001: 110). It is therefore important to explore other media: What is the potential for
new interactive technology via the internet or digital TV? What about consumer help-
lines, similar to NHS direct?
Question: How important is classroom/workshop provision of financial education?
Question: How do we ensure that teachers are well trained and at the same time
trusted by account holders?

Question: What other media can and should be utilised?


Who should the provider of financial education be in for the Saving Gateway?
The American experience shows that the choice of who provides financial education
programmes is crucial. In the case of IDAs, community-based organisations were
found to be the most successful in ensuring that the message in financial education
is communicated effectively. Being delivered by such organisations ensures that it is
not lost in ‘cultural gaps’ between those providing it and those receiving it. As with
401(k) plans, some financial education for IDAs is provided by employers. However,
this has only proved effective for both parties in communities where a few large
businesses or institutions dominate the job market (DOLETA, 2001: 5).
The most important conclusion regarding who should provide financial education to
come out of American examples is that whoever provides the service must be trusted
by participants. In the case of pension programmes, it was employers who were the
most trusted. In the case of IDA accounts, community groups, with roots in the
locality from which the participants are drawn, are shown to be the most effective
providers because of their ability to effectively communicate ideas to participants and
because participants trust the education provided.
A second important point concerning who provides financial education is the choice
of instructor. The choice of instructor was found to be particularly important because,
“since so many ‘unbanked’ persons distrust banks, it is crucial that they be able to
trust and relate to the instructor of financial education” (DOLETA, 2001: 9). In the US
experience it has been shown that careful selection of instructors, for example
ensuring that they are multi-lingual, specially trained and/or from within the
community, can alleviate possible problems of cultural mismatch and generate trust
amongst participants.

It should be noted that the importance of trust has been emphasised in the UK
context as well. Similar findings about who is and who isn’t deemed trustworthy are
evident in the UK research. Information is considered most trustworthy when
supplied by advice agencies, such as the Citizens Advice Bureaux, “possibly
reflecting their independent status” (Tanner, 2000: 8). Financial product providers
have a relatively low level of trustworthiness and the government is the least trusted
source of information and advice. The low levels of trust in financial product providers
cold be because of the concern over whether they are ‘advising or selling’ (Tanner,
2000: 9).

One study in Bristol found that formal education was important in providing basic
financial capability, yet stressed that at present there are few opportunities for
learning outside mainstream education (Kempson and Whyley 1999).
Given that the Saving Gateway policy is likely to be implemented by only one
provider two findings can be drawn from the American experience. First, it is
important that the single provider (or the partnerships they form) has a relatively high
level of trust within the targeted section of the community. Second, a way of
increasing trust and ensuring that the message of financial education is effectively
communicated is through the careful selection of instructors.

If we are to learn from the US some criteria for providers of financial education in the
Saving Gateway could be:
•   Provision of financial education must be base on a network which ensures
    universal geographical coverage.
•   Opportunities must exist for education to be provided in a classroom/workshop
    setting, supported by other media
•   The provider must be trusted by the local community.
•   There should be some flexibility in the delivery according to cultural differences
    and individual needs.
Because of the need for trust and flexibility provision of education by locally based
organisations would seem the obvious answer. There are many specific projects and
local community based organisations who will either already be delivering or be
capable of delivering all that is demanded. Indeed this is what the government could
well find when the Saving Gateway is piloted along side the Community Learning and
Finance Initiative. Successful pilots using this model could be misleading though. The
real issue here is how to replicate quality and possibly expensive provision at a local
level with a national network which will serve all Saving Gateway holders when it
goes to scale. The next section examine what the pilots should be used to study and
after this we explore options for provision when the policy goes national.
4. What should the pilots be testing in relation to the financial
   education element of the Saving Gateway?

The government is aiming to run Saving Gateway pilots in three or four locations,
with up to 500 participants in each, which will run for about 18 months. The
government proposes to work in partnership with one or more financial services
partners on the projects to provide account management systems and distributions
outlets. The pilots are also “to involve financial learning initiatives, run by housing
associations, credit unions or other local community groups.” (HM Treasury 2001: 23)

It is also proposed that the pilots will also test (among other things)
• How best to reach eligible individuals with relevant information about the benefits
     of the SG?
• What is the best way to present account information?

The pilots are clearly an opportunity to trial different methods of financial information
and education – both in terms of their effectiveness in achieving saving (and a saving
habit) and to achieve broader financial literacy goals. It will be important to remember
that the models tested should be able to act as a template for the nation wide
delivery of the Saving Gateway

Question: How can we ensure the pilots trial the effectiveness of different models of
financial education?


5. When the Saving Gateway goes national, what existing sources and
   channels of financial education can be used to best advantage in the
   Saving Gateway?

Using existing government policies and other delivery channels to deliver the
educational component of the Saving Gateway when it goes national would be
desirable. It will reduce the costs and reduce complexity if yet another programme or
policy were introduced with the objective of improving financial literacy.

There are a number of existing policies and delivery channels, which might be
interwoven with the Saving Gateway and help in the provision of financial education.
Some policies aimed at improving financial literacy focus primarily on young people –
for example the Educational Maintenance Allowance and Connexions. Although
these are important in an overall strategy to improve financial education, they are not
suitable for linking with the Saving Gateway because of the age of the people they
target. More relevant for the Saving Gateway are those policies targeted at existing
adults. Below we list and outline specific government policies and other organisations
who might be considered as potential providers of the financial education component
of the Saving Gateway.

Existing DfES policies
The Adult Financial Literacy Programme
The most fundamental and comprehensive government strategy which has
implications for financial education is found within the National ‘Skills for Life;
strategy. The Adult Financial Literacy Programme aims to improve the basic skills
including literacy and numeracy of 750,000 people by 2004. It is an overall strategy
for improving basic skills. It emphasises the role of a range of organisations, not just
the government, and aims to give to all adults who desire it free training. The strategy
identifies groups who are most in need and then how these groups will be targeted.
The four groups identified which need to be helped include:

    •   People in contact with government agencies, such as the unemployed.
    •   People in the public sector.
    •   Low-income workers in the private sector.
    •   Other marginal groups such and asylum seekers and the homeless.

Of most relevance for the Saving Gateway target group are the strategies devised for
low-income people in work. For low-income people in work Trade Unions, national
training agencies, social services, and the Small Business Service are among the
organisations identified as being potential providers of education and training. The
role of employers is also stressed, something outlined in some more detail below.

There is much to be gained from thinking about financial education in the Saving
Gateway in the context of this overall strategy. The framework established is a useful
way of identifying different organisations which need to be engaged in order to reach
different groups. However, there are drawbacks. Firstly, there is not necessarily a
focus on financial education. Financial education could be seen a subset of
numeracy, yet if the current focus remained unchanged then it is unlikely that
financial education would be appropriate to the Saving Gateway. This is not to say
that an adapted form of education, one which is better linked to the Saving Gateway
could not be provided through this framework. A second drawback of the framework
is that it is relatively light on the role of community-based organiastions and money
advice agencies.

Information Advice and Guidance Partnerships
The Treasury has also suggested using Information, Advice and Guidance
Partnerships (IAG). Pilots started in December 2001 and will run until 2003 and the
main aims are to improve access and participation in learning activities through the
provision of high quality local information, advice and guidance services. They might
also help people assess in more depth their needs and circumstances, before
considering the range of opportunities available. This could include financial
education, though there is no explicit mention of this in the government literature.

The IAG is based on partnership between a range of organisations. The Partnerships
“should ensure coherence between the needs of the local labour market, the supply
of local learning opportunities and the learning needs of individuals. IAG partnerships
have a key role in helping clients to identify their learning needs and advising on
learning and work opportunities.”4

One of IAGs strengths is this emphasis on partnership, which could facilitate access
to education for Saving Gateway holders. It is envisaged that the programmes will
develop networks in deprived areas involving a range of providers from the voluntary
and private sectors. Although the emphasis at the moment is on learning and not so
much on basic skills, within the framework and partnerships created there could be a
shift in emphasis. The main draw back with using the IAG is that it will be
geographically targeted and will not cover many Saving Gateway account holders.




4
 Information, Advice and Guidance locally for adults – towards a national frame work
www.lifelonglearning.co.uk/iag/spec04.htm
The Basic Skills agency
The Basic Skills Agency has as part of its remit improving numeracy. Although
basic skills projects might have financial education as part of their brief, it is not
their primary goal. The strengths of projects funded by the basic skills agency are
that they reach financially excluded groups and they build on the capacity of local
community based organisations5.

Community Finance and Learning Initiative
The CFLI aims to use local community based organisations to draw together range of
different programmes and policies at a local level. It has a number of aims, one of
which is to build financial literacy skills through the provision of appropriate training,
education and support. Its other aims are to increase awareness of and access to
education and training, to increase access to financial services and to provided a
vehicle for access to micro finance.
It will provide a more holistic and joined-up approach tackling financial exclusion and
is being used at the pilot stage of the Saving Gateway to provide the financial
education component. Depending on the future of the CFLI, it could continue to run in
tandem with the Saving Gateway. However this would rely on community based
organisations even after the Saving Gateway goes national. There are question
marks about the capacity of community based organisations, such as those used in
the CFLI, being available throughout the country.

Financial education and the DWP
It has been suggested that the Saving Gateway, when it goes national, could be
targeted at people as they move off benefits into work. This raises the possibility of
working with government agencies dealing with people making the transition into
work.

ONE
For example ‘ONE’, currently being piloted, provides a single point of contact for
people of working age, who are currently not working, to access the benefits system
and receive help and information on work and services. Clients are allocated a
personal adviser who, works with them to assess their job potential, providing advice
on in work benefits and who, in the longer-term, may be able to assist in directing
people towards basic financial information.

The New Deal
Similarly the gateway stage of the New Deal is used to develop people’s plans,
search for a job and also improve people’s prospects of finding employment. Whilst
recognising that advisers are likely to come across a range of barriers, not just a lack
of financial education, New Deal personal advisers can offer clients advice on in-work
benefits and it may be possible to identify skills including an element of financial
literacy at this stage. Short courses are provided for people which are tailored to local
needs. This is an important part of the overall strategy to improve financial literacy.

Whether or not they should be expected to continue to provide financial education for
people who get work and open a Saving Gateway account is however questionable.
There are two main problems. Firstly they will have other potentially more immediate
priorities. Secondly advisors will only have contact with people while they are either
out of work or when they are making the transition into work. They could provide
5
   One example of a programme operated by the basic skills agency include the Adult and
Community Learning Fund, intended to improve individuals basic skills including their financial
literacy through the use of community based organisations. Another is the basic skills and ICT
programme which aims to improve the quality of the materials provided via ICT.
some minimum of financial education and direct people towards further education,
but it is unlikely that they could provide any continuity as people move into work.

Financial Service Authority
The Financial Services Authority (FSA) has a statutory role to promote public
understanding of the financial system and is developing a programme which meets
both the educational and informational needs of consumers. For example, under
development is an Adult Learning Programme for adult consumers which provides a
framework covering most consumer financial services and important concepts. The
FSA should not be thought if as having a direct role in the provision of financial
education for people with Saving Gateway account however. Instead it can provide
information and support for people providing the education on the ground. Making
people aware of the services and the information which are provided will be
important.

Education through the not-for-profit sector
Many of the programmes mentioned above work in partnership with the not-for-profit
sector. There are many voluntary organisations in regular contact with significant
numbers of people with limited access, knowledge of or confidence in, financial
services. Partnerships with voluntary organisations produce an effective channel to
provide financial education and information to these individuals. The programmes
which are being piloted in the Community Finance and Learning Initiative are also
locally based. There is a range of different local organisations, which could be
considered as potential deliverers of financial education.

Social housing
84% of those without any financial products from a financial institution are tenants of
social landlords. Many of the people who will be eligible for a Saving Gateway will
also live in social housing. This raises the possibility that Registered Social Landlords
could be encouraged to promote financial education and be considered as possible
partners in the delivery of education linked to the Saving Gateway.

Credit Unions
The Credit Unions Act 1979 gives credit unions a legal responsibility to provide
education and training to their members in the wise use of their money and in the
management of their financial affairs. They are actively involved on a day-to-day
basis in improving the financial literacy of their members. However their role could be
expanded and could be linked to the Saving Gateway, particularly as part of local
partnership with other local agencies.

CABx
Throughout the UK citizens advice bureaux provide information and advice for people
to secure their rights and responsibilities. The majority of CAB advice addresses
money issues and most after problems occur although some do seek ‘pre-shopping’
advice. This is a role which NACAB have been keen to encourage and have
expanded in recent years (NACAB 2001). As we shall see below money advice
agencies meet the above criteria better than most alternatives: They have national
coverage: could they support classroom-based education through links with local
colleges.

Employers
The US evidence suggests that employers can be very successful deliverers of
financial education. The experience of 401ks, where there are string incentives for
employers to financially education their employees, should be instructive.
When the Adult Financial Literacy Programme discusses low-income people in work,
it emphasises the need to engage employers. Linking in with the IAG pilots
employers will be encouraged to provide greater education as part of their on-going
training programmes. Small businesses can be supported through the use of
employer learning networks – working together with other small employers. The
strategy also suggests that the Learning and Skills Council and the Basic Skills
Agency support large, medium and small employers through creating more ‘brokers’
to facilitate a close and constructive relationship between employers and training
providers.

Assessing the options
Table 1 below assesses these different options according to the criteria identified
from the US experience. This table does not discuss the options above which involve
a partnership approach. Therefore the Adult Financial Literacy Programme is not
listed, as this is an overall strategy which could include a number of the providers
listed.

Table 1. Options for education providers
              Govern   New      Advice      FSA      Community      Employers     Financial
               ment    Deal/   agencies             organisations                 Services
                       ONE                             (CUs)                      industry
Universal      Yes      No        Yes       Yes          No            No            Yes
coverage
Classroom      Yes       ?        Yes        No         Yes            Yes          Yes ?
 Trusted       No        ?        Yes         ?         Yes            Yes           No
Flexibility     ?       Yes       yes        No         Yes            Yes           No

The US experience suggests that either community based organisations or
employers are the most appropriate providers of financial education. They are
trusted, can deliver classroom-based education and can be flexible. However, it is
not certain that either of these options has universal coverage. In the case of
employers, small businesses might not have the capacity to provide education.
Moreover people may stop working after opening a Saving Gateway account.
Community based organisations will be able to deliver education at the piloting stage
but nationally there are question marks about their coverage. These options could
provide financial education to some people but would not be the whole answer.

The importance of partnership and a variety of providers
It seems clear that there will not be one single provider of financial education. None
of the potential providers are without drawbacks. It might be more fruitful to think
about a variety of potential providers who operate in partnership with the national
consortium providing the Saving Gateway.

The framework provided by the National Adult Literacy Strategy is useful and could
be utilised by the Saving Gateway. A similar exercise identifying different potential
providers for different groups in receipt of the Saving Gateway could be carried out.
At present this is difficult to do as the exact target group of unknown. Experience in
the UK and US suggests that local initiatives are most effective, especially if they
involve partnerships. The experience of programmes implemented so far highlight
the need to work together with a range of organisations.

Question: What should the nature of the consortium be? Is it possible to have a
single provider of financial education?
Question: How could integrating financial education into the SG be simplified in a
single-provider approach? – consortium of business and/or other organisations?

Question: How might the link with the CFLI work when the Saving Gateway goes
national?


6. Are new agencies or partnerships needed?

Delivering Saving and Assets for All focuses on how best to use existing sources and
channels for financial education. This is a good starting point. We need to be
confident that existing sources can provide the necessary education. Are we
confident of this? If not, what more is needed?

Question: Do we need to create new partnerships, or new avenues and agencies
altogether?




References

Bayer, P. J., B. D. Bernheim and J. K. Scholz (1996) The Effects of Financial Education in the
Workplace: Evidence from a Survey of Employers National Bureau of Economic Research
Working Paper No. 5655

Bernheim, B.D. and D. Garrett (1996) The Determinants and Consequences of Financial
Education in the Workplace: Evidence from a Survey of Households National Bureau of
Economic Research Working Paper No. 5667

Clancy, M., M. Grinstein-Weiss, and M. Schreiner (2001) Financial Education and Savings
Outcomes in Individual Development Accounts Centre for Social Development Working Paper
No.01-2.

Department of Labor, (2001) Teaching Dollars and Sense: Implementing Financial Education
in a One-Stop Setting wtw.doleta.gov/dollarsandsense.html

Schreiner et al (2001) Savings and Asset Accumulation in Individual Development Accounts:
Downpayments on the American Dream Policy Demonstration Centre for Social
Development, Washington University in St Louis: St Louis.

Tanner, S. (2001) The role of information in saving decisions Institute of Fiscal Studies
Briefing Note No. 7

Schreiner and Sherraden (2002) Drop-out from Individual Development Accounts: Prediction
and Prevention Centre for Social Development, Washington University in St Louis: St Louis.

Kempson and Whyley (1999) Kept out or opted out? Understanding and combating financial
exclusion’ The Policy Press/Joseph Rowntree Foundation, London

								
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