Financial Capability | Policy on Pensions and Debt

pecuniary efficiency Policy on Pensions and DebtHow farthest does policy towards pensions, debt and the monetary celestial sphere reflect the universals level of fiscal energy?The familiars level of financial ability is an ara that is create policy makers great concern, especially in these times of economic doubtfulness and instability. Financial capability is ab verboten cosmos equal to(p) to being able to manage money and cargo deck track of your finances. It is too most being able to plan ahead and choosing the rightfulness financial products and just about staying intercommunicate about financial matters. The rapidly changing demographics of our population and the associated changes in our community means that policy makers argon having toThis evidence go forth firstly olfactory sensation at the concept of financial capability. It is a relatively new estimation without an established consensus about what it actually means. This essay go forth try and d iscipline some of the key characteristics of this concept. It will then turn to consider how financially capable the populace is as a unhurt. Finally this essay will consider just what this means for policy makers in pensions, debt and the financial empyrean and how in line current policy is with the how the public view these scene of actions.Atkinson et al (2006) provide the to the highest degree comprehensive study of financial capability in the UK. From their studies they have determined that this concept can be broken slew into quadruplet key domains. These ar, managing money, formulation ahead, choosing products and staying informed. It is worth looking at these cost in a little more detail. Managing money is how come up you be able to make ends meet and how well you are able to keep track of your money. It should be noted that those on a higher income whitethorn be able to make ends meet but have no money management learnings. Planning ahead is the ability to dea l with financial commitments that are coming in the future and also un pass judgment events. retreat is one of the most significant financial commitments that hatful are expected to deal with and plan for. Choosing products is the knowledge and the ability to choose financial products that are best suited to the needs of the individual such as cite cards, mortgages and loans. The final domain of financial capability is staying informed. This is measured by how well populate keep informed about financial issues, whether their own or financial issues in the wider world.It would be useful to now look at how financial capable the public is in the UK. Again, the most comprehensive dissemble in this area comes from Atkinson et al (2006) who conducted a pile of everywhere 5000 people to determine just how financially capable we as a state are. It is important to note from the outset that because financial capability is broken into these four offend domains, it is possible that an i ndividual can be capable in one but not so capable in the opposites. This essay will now turn to look at each of these separate domains in turn to determine the financial capability of the public.Atkinson et al (2006) nominate that on the in all the UK is quite good at making ends meet. They did severalise a minority who did not do so well. Those were young people who rented their homes and managed a cash budget. This group included lone parents, the unemployed and those who had been out of work for a while due to illness. Atkinson et al (2006) ready that at that place was no pattern to those who kept track of their money. They suggest that it is a skill that some people acquire everywhere time.Planning ahead was an area that Atkinson et al (2006) strand that the UK was not very good at. They found that over half the people they surveyed had made any provisions for a pearl in income. This trend was also evident in preparing for retirement. The survey found that older people and those on higher incomes were improve at planning ahead. Education also played a key role with those having achieved A-levels or higher being more liable(predicate) to plan ahead. However, the survey found that if presented with the opportunity to plan ahead by an employer then people are more likely to take them up.The 2006 survey found that the public was for the most part poor when it came to choosing the appropriate financial products for them. It found that people were not instinctive to shop around to find the best product for them. Only a small minority had sought advice before purchasing products and only a small minority of this group had read the terms and conditions on these products. The survey did find that capability usually went up with the more products that people bought. In a sense, you learn by experience. Middle-aged people scored most extremely in this domain, while young people scored badly.Atkinson et al (2006) found that most people surveyed felt it was important to keep up to date with financial changes but few actually did so. The survey found that an important picture of financial capability is the ability to deal with disputes and complaints. Here, people are more likely to complain about financial run rather than about financial products. This could be that they didnt know who they could complain to.On the whole this survey paints a picture of the UK public not being that financially capable. The public is strongest when it comes to making ends meet but in the 3 other domains at that place lacks any level of real financial capability. This essay will now turn to look whether policy in pensions, debt and the financial sphere reflects that.The 2006 white paper from the pensions department entitled, personal accounts a new focus toSave, sets out the disposals vision when it comes to pension policy. It recognises the fact that the public isnt so capable when it comes to choosing the best financial products for them. There fore, the government is trying to limit the heart of choices that the individual has to make. The white paper states that it is trying to give savers, flexibility without complicating their decisions. The government is also trying to improve the publics knowledge about financial products so that in the future they will make better informed choices. Raising awareness and educating people about financial products is a key government policy in this area. John Tiner, the FSA Chief decision maker argues that, if people know what they want and how to get it, the market for financial services becomes less one-sided and a lot more efficient. Consumers will prerequisite better, cheaper and more appropriate products and services (2004).Debt is an interesting area because it is an area where there has been massive change over the past few months. A treasury Study conducted in 2007 stated that most consumers were able to manage their credit entry successfully and that over-indebtedness was only a problem for a small minority. This is certainly in line with the findings of Atkinson et al (2006). However, recent events have shown that the problem of over indebtedness is much larger than could have been anticipated. The government is trying to undertake that there is transparency in the financial sector and better approaching to services such as debt advice. The government currently has three antecedence areas for tackling this financial exclusion. These are chafe to banking, access to affordable credit and access to face-to-face advice. The 2006 survey found that the public as a whole are far from capable when it comes to searching out help and advice so the government policy certainly reflects the publics capability in this area.Government policy in relation to the financial sector has also been affected by the events of the past few months. Perhaps the most limpid example of the governments commitment to making sure that the public are treated correctly was the formation of the FSA with consumer protection and awareness at the heart of its remit. The government is trying to get the financial sector to simplify its products so that the consumer has a better chance of choosing the right product for them. The government has also called on the financial sector to alter responsibly so that levels of over-indebtedness dont go up.The government recognises the foster of financial capability as an important life skill. Having a public that is financially capable means that they are less likely to go into debt, can handle unexpected financial obligations and they are more likely to save for future events such as retirement. Good financial capability also increases competition in the financial sector as customers seek out the best deals for them. The governments policies largely reflect the publics current levels of financial capability. However, more effort must be made to increase awareness about financial products and services that are availabl e to them.Bibliography and ReferencesDepartment of Trade and Industry, Tackling over-indebtedness annual report, 2006.Department for Work and Pensions, Personal accounts a new way to save Regulatory Impact Assessment, declination 2006.Financial Services Authority, Building financial capability in the UK, 2004.Financial Services Authority, Personal Finance Research Centre University of Bristol, Levels of Financial Capability in the UK Results of a baseline survey, March 2006.HM Treasury, Promoting financial inclusion, celestial latitude 2004.HM Treasury, Financial Capability the Governments long-term approach, July 2007.