At the recent UK Financial Services Summit, a panel discussion touched on the need to improve the financial education of consumers, particularly when it comes to saving for retirement. Too many people underestimate the scale of saving that is required to fund the standard of living they expect upon retirement. To be fair, the panelists also noted that traditional investment products largely fall short when it comes to addressing longevity, inflation and a host of other factors that can erode long-term returns.
The Consumer Financial Education Body (CFEB), a group created by the British government earlier this year, published a report yesterday on the link between financial capability and the propensity to save. The measures of capability and saving correspond, roughly, to a basic grasp of personal finance and regularly setting aside money aside in a “rainy day” fund. Using these fairly simple measures—no talk of annuities or target-date mutual funds—a 15-year panel of data on British households found a strong link between education and savings, subject to some variation based on gender, age, income and other demographic factors.
Vyv Bronk of the CFEB, a panelist at the summit, noted that her group aims to raise the level of financial capability in Britain by offering free advice and information on subjects like saving for retirement. Anecdotally, she mentioned another method to get people to “envision” their future financial needs: showing them computer-generated photos of what they will look like when they retire often encourages them to save more. Simple but effective.