The FSA has published Consumer Research Paper 69 entitled Financial Capability: A Behavioural Economics Perspective.

The FSA commissioned Professor de Meza, Professor Reyniers and Dr Irlenbusch (London School of Economics) to conduct a review of behavioural economics literature, examining what this literature has to say about consumer behaviour when making financial management and/or choosing financial products, and in particular, the likely impact of financial capability initiatives, or other information provided to consumers with the intention of encouraging better choices about financial products.

Overall the review found that there is a lack of direct evidence that the National Strategy for Financial Capability will substantially improve long-term financial decision making. The indirect evidence from behavioural economics is that low financial capability is more to do with psychology rather than knowledge. Institutional design and regulation are probably far more effective than education, though crisis counselling may be helpful. More research is needed on whether cognitive biases can be overcome in the personal finance domain.

View Financial Capability: A Behavioural Economics Perspective, (PDF 720KB), 14 July 2008