The financial watchdog has called on providers to create ‘nudges’ to encourage consumers to follow a set of simple rules.
The report from the Financial Conduct Authority aims to target the 13 million ‘squeezed’ consumers in the UK who, it said, fail to think about the bigger picture when it comes to their finances.
According to the report, which is part of the Financial Advice Market Review, consumers have given a “clear message” that they do not trust financial services providers.
Rather than offering new products, the regulator argued that providers should make sure they ‘nudge’ consumers about taking action on their finances at appropriate points to try to build consumer trust.
It said, for example, that a bank should warn customers when they are about to be overdrawn, or a credit card provider should display the cost of credit clearly in pounds and pence when taking out credit, as well as regular reminders on statements.
Yet it emphasised that rules of thumb with numbers or calculations do not often work for financial services consumers because they are too complicated and not always universal.
The regulator aims to emulate the simple ‘five a day’ rule to try to encourage people to engage with their finances, including:
| 1. Clean up your finances regularly |
| 2. Manage your borrowing, don’t let your borrowing manage you |
| 3. Save when you can - even a little helps a lot |
| 4. Pile into your pension – it’s your future income |
| 5. Other people get help to make the most of their money, so can you |
The report stressed that consumers do not want to be told what to do, but are happy to be nudged, and highlighted a number of ways in which providers could install automatic ‘nudges’ through technology to encourage people to follow the ‘financial five’ rules.
It said, for example, that providers could use the auto-enrolment review to embed nudges that will encourage people to contribute more to their pensions.
The report also said some financial rules are now “irrelevant or outdated” when it comes to today’s challenges, pointing out, for example, that property is often viewed as a risk-free investment when in reality property is highly illiquid and exposed to huge fluctuations in price.
Richard Freeman, chief distribution officer at Old Mutual Wealth and member of FAWG, said: “Simple rules that stick in the mind can help to change behaviours, and over time could foster a savings culture that makes us more financially savvy, prosperous and secure.”
But, he said, that will only happen with political support, and called on the government and the financial industry to create sustained awareness campaigns to help shape behaviours.
“The proposed behavioural nudges will help people keep on top of their finances, think about the long-term and get the right expert support, whether that's from government-backed guidance services, advice from a professional financial planner, or help from a charity.”
katherine.denham@ft.com
