Report – An introduction to financial health checks
February 2022 • The Purpose of Finance • by William Wright
This ‘concept paper’ outlines an ambitious initiative to help engage and empower individuals with their money, improve their financial resilience and financial literacy – and ultimately drive wider retail participation in capital markets.
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The core concept of this paper is that every few years – or at each of your big life moments – you would receive a gentle nudge from a trusted source. These nudges would point you in the right direction of a simple financial health check tailored to your age, life stage or circumstances. They would provide some simple, free and impartial information, and point you towards additional resources. They wouldn’t tell you what to do. They wouldn’t be selling you anything, and they wouldn’t share or record any of your personal financial information.
Instead, they would nudge you to think about how to ask the right questions about your money and to consider your options – and provide you with just enough information at just the right time to help you think them through.
We think this could be a powerful tool to empower and engage millions of citizens in the UK and the EU, to help improve their financial well-being, financial resilience, and financial literacy – and to provide a long-term boost to the economy.
Summary: an introduction to financial health checks:
1. Regular financial check-ups: this paper outlines the concept of regular financial health checks for all EU citizens to improve their financial engagement, resilience and well-being. This would involve a series of age-based or life stage based ‘nudges’ from government or another trusted source for citizens to take a short online (or potentially in person) financial health check tailored to their circumstances, to help them form good financial habits and engage more with their money.
2. The problem: the combination of low levels of financial literacy, financial participation, and trust in the financial industry in Europe (along with a cultural reluctance to talk about money) translates into low levels of financial well-being and resilience, and a low level of engagement by European citizens with their money and financial matters. Financial health checks would help connect citizens with their money and drive traction with existing financial literacy programmes.
3. The value proposition: financial health checks would lead to higher levels of financial well-being and resilience, better financial literacy, more trust in the financial services industry, and higher levels of participation in financial services. More citizens would feel more in control of their money.
4. Parallels with health checks: many countries have a system of physical health checks, which offers plenty of parallels for financial health checks, including: the value of collective solutions; universal coverage; the concepts of cohorts: early detection and prevention is better than a cure; simple nudges, maxims and rules of thumb; the link between physical, mental and financial health.
5. Style & content: these health checks would be high level and more focused on concepts such as budgeting, savings, long-term financial planning, and understanding risk, rather than granular financial calculators. They would aim to encourage good habits to support financial hygiene, well-being and resilience.
6. Frequency: at a basic level, citizens could receive annual or age-based ‘nudges’ to take a basic financial health check. A more advanced system would involve ‘life stage’ nudges (such as leaving school, starting work, buying a house, having children). The key is to provide regular and relevant nudges to engage people in thinking more about money and financial matters at the right time.
7. Source and delivery: the sources of the regular ‘nudges’ would be a trusted source from a combination of government, employers, or healthcare providers. The content or ‘curriculum’ would be developed in partnership between governments, regulators and civil society groups (based on existing frameworks). Face-to-face health checks could even be conducted by civil society groups.
8. What they are NOT: financial health checks are not a replacement for existing financial literacy programmes (they would instead drive traction to them); not about going back to school; not compulsory; not low-level financial advice; not just online; not a product comparison site; and not a retirement calculator.
9. The policy angle: an EU wide system of financial health checks would build on existing EU initiatives such as financial literacy and digital IDs; support ‘an EU that works for its citizens’; help put ‘citizens at the heart of CMU’. The EU’s convening power and technical expertise would create a cost-effective common platform.
10. The likely pushback: an EU-wide project would face many challenges (complexity, cost, priorities, government intrusion, privacy concerns). However, the cost, time and effort involved would be far less than is currently expended on thousands of pages of detailed financial regulation – and the benefits of higher levels of financial literacy, higher financial participation and better financial well-being and resilience for millions of EU citizens would more than offset the costs involved.