Building & articulating value & return on investment of - - PowerPoint PPT Presentation

Building & articulating value & return on investment of FC/IE efforts over time: The UK experience

2016 IFIE / IOSCO Global Investor Education Conference 12-14 June 2016

Helen White Head of Financial Capability The Money Advice Service (UK) www.fincap.org.uk / Enquiries@fincap.org.uk

“Value” & “Return on Investment”

• How define for financial capability?
• How measure for financial capability?
• Investor perspective:
• Why invest in fincap instead of something else?
• Why invest in one fincap activity vs. another?
• But what about impacts beyond the investor?
• What value & RoI will result from investing in fincap?

Quantitative Qualitative Short term Long term The Economy Society Individuals / Households Businesses State expenditure Local authority costs

2

KEY MESSAGE 1: There are multiple ways of defining & measuring value & RoI for financial capability You need to measure from multiple angles & perspectives to engage multiple stakeholders

3

FINANCIAL WELLBEING Current wellbeing Longer term financial security

Debt measures

FINANCIALL Y CAPABLE BEHAVIOURS Managing money well day-to-day: 1. Managing credit use 2. Active saving 3. Keeping track Managing and preparing for life events: 4. Building resilience 5. Working towards goals FINANCIAL ENABLERS & INHIBITORS

MINDSET ABILITY CONNECTION

• 4. Financial knowledge
• 5. Internet ease & access
• 6. Financial engagement
• 1. Attitudes to saving
• 3. Controlled

spending

• 2. Financial confidence

Common Measures of Financial Capability

How we will use these measures of financial capability

• We will use only the 5 behaviour measures to measure the

success of the UK Financial Capability Strategy:

• Managing credit use
• Active saving
• Keeping track
• Building resilience
• Works towards goals
• But we will also collect data on & monitor the wellbeing &

enabler / inhibitor measures

5

Examples of how you could measure impact & value at different levels

6

2008 Thoresen Review

Estimated costs & benefits of a generic money guidance service up to 2060 (Net Present Value) to be:

• For users of the service
• Over £15 billion
• For the financial services industry:
• Benefits: £3,612m-£5,514
• Costs: £390m-£832m
• For the UK Government:
• Benefits: £4,650-£6,000
• Costs: £390m-£839m
• For society as a whole
• £344m

7

Measuring benefits of increased financial capability to the Economy

• MAS commissioned economic modelling & analysis of improved UK

financial capability from an independent economic consultancy

• Purpose:
• to demonstrate potential economic gains which would result from a

generalised increase in the population’s financial capability

• This will:
• inform more effective appraisal of the value for money of investing in

activities designed to improve financial capability, &

• help illustrate to stakeholders – including Government, business,

financial services industry – the economic value of investing in activities to increase financial capability

• We aim (hope!) to publish results autumn 2016

8

Methodology

• Data from MAS 2015 Financial Capability Survey used to

develop a Financial Capability Index (FCI) = 15 point scale to measure an individual’s capability

• Individuals’ life events modelled to compare financial
• utcomes before & after an increase in their FCI score
• Model takes sample of individuals & predicts how they will

respond to various life events (e.g. marriage, buying a home, child, divorce, retirement) & impact on their financial

• utcomes
• Uses official statistics on these life events across the

population to ensure realistic

• Repeats exercise with improved financial capability
• Compares changes in how individuals respond to life events
• Measures how much ‘better off’ they will be as a result of

improved financial capability

• Difference in outcomes by end of life aggregated,

& weighted to reflect UK population

• Model assumes universal increase in financial capability

to produce a value for the overall benefit of improved financial capability to the economy

9

Impact on financial services

• Financial services sector response to improvements in financial capability –

& therefore impact on supply – is uncertain & difficult to model accurately

• May lead to increased consumption of some financial products

& efficiency gains from greater competition

• May reduce conduct regulation / complaints / redress risks & costs for the

industry as result of reduced mis-selling

• May lead to reduced sector revenues as result of less borrowing, more

consumer product switching

• Results will be important in persuading financial services firms to support &

participate in implementing the FinCap Strategy

• We expect significant wider benefits of improved financial capability, including

health, labour productivity, tax revenue, government spending

• Work in progress to understand nature & scale of these benefits

10

Potential benefits of tackling financial capability through the workplace

• Impact on physical health?
• Impact on mental health & focus?
• Impact on productivity?
• Impact on recruitment, retention, loyalty?

11

Benefits of reducing over-indebtedness (as example of cost of poor capability)

Estimated that currently 8.2 million people in the UK are over-indebted

12

Work by Step Change debt advice charity

• Estimates that :
• around 3 million people in the UK in severe problem debt
• social & economic costs of problem debt to society = at least £8.3 billion.
• 2014 review of social impact of its debt advice service, using “social return on

investment” methodology

• Benefits of reducing problem debt include:
• Improved mental health
• Improved physical health
• Reduced health treatment costs
• Reduced unemployment / increased employment
• Reduced risk of losing home
• Reduced risk of relationship breakdown
• Reduced risk of children being taken into care
• Reduction in crime
• Reduced state welfare costs
• Reduced costs for creditors

13

KEY MESSAGE 2:

To achieve maximum value & return

• n investment

You need to pilot & evaluate multiple Fincap activities to build evidence on what works (& what does not) Then direct resources of many

• rganisations to activities &

methods the evidence shows work

14

MAS ‘What works’ grant fund

• £7 million fund to be awarded as grants to build

evidence on what works in improving financial capability

• All projects must robustly evaluate impact using

approach & tools created by Money Advice Service

• All funded projects must share results publicly via

MAS Evidence Hub

15

3 types of projects to be funded: 1. Existing financial capability interventions: Evaluate impact on users, effectiveness in improving financial capability 2. Potential to Scale up: Evaluate extension of existing interventions - already proven to be effective, - to different target group or wider geographical area 3. New approaches: Develop, pilot & evaluate impact of new ideas

• Will tell us what impact different types of

activities & methods financial capability & behavior, & how big the impact on individuals

• But more work needed to measure the value of

the impact, relative to costs, to determine return

• n investment

KEY MESSAGE 3: Explore methods of achieving both social & financial value

16

Social investment is funding that is provided to generate both social & financial returns Social investors include specialist banks, funds, trusts, foundations & individuals Social investment is not a grant or a charitable donation; investors expect to get their money back, often with interest, as well as to see outcomes showing that the social good they interested in has been achieved Social investment can come in many forms and structures:

• Debt – e.g. loans or overdrafts
• Equity – e.g. shares in a social enterprise
• Quasi-equity – investor benefits through royalty

payments of a fixed share of future income

Social investment

• Type of social investment
• Form of outcomes-based

commissioning of services with social benefits (‘payment by results’)

• Investor provides upfront

funding & takes financial risk

• Commissioner agrees to pay

return IF social outcomes are achieved

• First launched in 2010
• 40+ worldwide, 32 in the UK
• Variety of models
• Still a relatively young market

What are Social Impact Bonds?

ü Willingness to work in a payment for outcomes contract (level of risk taken by provider depends on the model) ü Clear & measureable outcomes, a robust way of measuring them & attributing success to the intervention ü Investor(s) willing to pay up front & take the (financial) risk of failure in

• rder to deliver the outcomes in question

ü Evidence good enough to convince them it is likely to work ü A ‘commissioner’ who is prepared to pay back at the end if the intervention is successful

What needed to make a SIB work

• Upfront investment that can enable

scaling or testing of new approaches

• Secure funding for a specific timeframe
• Investors who are interested in social
• utcomes as well as financial
• Financial risk sits with investor
• Rigour in measurement - adds to evidence

base

• Flexibility about how money is used, &

adapting interventions over time

• ‘Hands-on’ support & capacity building
• The money gets 'recycled'
• May be a better deal if government help

for social investors

The Benefits

The Challenges

• May be complicated and take a long time to develop and set up
• Scale & duration have to appeal to investors
• Capacity to undertake rigorous data collection & monitoring
• Tight performance targets
• Can be more expensive for the commissioner if the intervention is

successful – has to be a compelling business case

Could SIBs provide funding for Fincap activities that are proven to work? If so, what outcomes would be appropriate? For whom? Over what timeframe? Who could commission such bonds? Who would be willing to pay for the outcomes? What evidence exists / needed to make a compelling case to potential investors & commissioners?

What we (MAS) are exploring

Next steps for MAS

• Producing analysis paper setting out the case, risks,
• pportunities, & feasibility of potential outcomes
• Further workshops with stakeholdersto agree priority
• utcomes
• Further discussions with experts: investors, other

commissioners, intermediaries, and government leads

23

KEY TAKEAWAYS

24

• 1. There are multiple ways of defining &

measuring value & RoI - You need to measure from multiple angles & perspectives to engage multiple stakeholders

• 2. To achieve maximum value & RoI you need to

pilot & evaluate Fincap activities to build evidence on what works - & what does not - then direct resources of many organisations to activities proven to work

• 3. Explore methods of achieving both social &

financial value