Older people with greater numeracy skills save more for retirement, plan better for long-term care and even have sex more often, according to research from International Longevity Centre UK (ILC-UK).
The organisation found just one in four English people over age 50 can perform a simple compound interest calculation. Asked how much a £200 account earning 10 per cent a year would become in two years, just one in three men over age 50, and one in six women, were able to give the right answer.
Presenting new evidence on financial education at the ILC-UK National Retirement Income Summit today, ILC-UK Research Fellow, Dr Cesira Urzi Brancati argued that whilst there is strong evidence of a link between good numeracy and good financial outcomes, the evidence of what works in terms of improving financial literacy is limited.
Based on new analysis of the English Longitudinal Study of Ageing (ELSA), the ILC-UK research found stark differences between the levels of saving of those who could successfully answer a series of five test questions and those who could not. Those who could answer all five questions correctly had average household savings of £60,000, while those who could only answer one correctly had around £12,000 on average.
Numeracy skills were also found to be linked to care planning, with 19 per cent of those getting the correct answer to all five questions having taken steps to plan for long term care, compared to 4 per cent of those getting one question correct.
The research found older people who have good numeracy, tend to have sex more often than those who do not. Amongst the 60-69 age group, 73 per cent of those getting either four or five questions right had had sex in the last year, compared to 41 per cent of those getting none or one question correct. In the 70-79 age group, 49 per cent of those getting four or five questions right had had sex within the previous year, compared to 28 per cent of those getting none or one question right.
ILC-UK says the data raises questions about whether financial capability is innate or learnt, and informs the debate about the extent to which financial education programmes can be successful. It argues that financial education can affect some behaviours but not others, that courses that last only a few hours are less effective and that workplace interventions or career counselling are more effective.
The organisation says women and older people are especially disadvantaged in terms of financial capability.
Brancati said: “Increasingly, responsibility for our financial wellbeing in retirement is being placed on individuals rather than the state. Yet we believe that potentially many millions of people are ill-equipped to make the best financial decisions.
“It is clear that good numeracy appears to be correlated with good financial outcomes. But in fact, the impact of measured financial capability on financial behaviours is ambiguous. Perhaps some people save more and can give more correct answers simply because they are smarter. And perhaps some people have saved more or invested better and therefore have learnt the working of compound interest.
“Even if we were absolutely convinced that you can “teach” financial capability, it isn’t clear we have adequate evidence as to what actually works for older people.
“We very much welcome the recently announced investment by the Money Advice Service to help us better understand more about how to improve financial capability.”
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