New research on the main hurdles to financial capability

Financial behaviour challenges RSA report

Financial capability is the ability to handle your personal finances in a practical way. Capability goes way, way beyond financial literacy, which is more about having information and knowledge, and continues into healthy action and money management.

While good quality financial information is important, it can only get us so far with our money in everyday life. We often act on emotions and impulses, rather than putting sound knowledge to good use, and while this can sometimes help our finances it tends to be more likely to harm them.

It seems likely that for any type of financial education or training to work, it needs to include many elements of behavioural change as well as the usual standard information and facts and figures.

The recent Wired for Imprudence report from the RSA was an interesting and timely publication, looking at several behavioural issues that can have a negative effect upon anyone’s financial capability. They suggest that these affect most of us to a greater or lesser degree, and that human beings might even be ‘wired to be imprudent with money’.

According to the report, these are the main hurdles to financial capability that need to be addressed:

1. Cognitive overload. Having too much information in your mind at one time tends to make you look for the simplest option, rather than the best option.

2. Empathy gaps. In a nutshell, not realising how you will feel in any given situation. This could be, for example, forgetting that being hungry will affect your grocery shopping.

3. Optimism / overconfidence. Unrealistic expectations about the future can lead to a lack of protection or contingency.

4. Instant gratification. Impulsive behaviours can undermine longer term savings and other financial planning.

5. Harmful habits. We don’t just tend to make poor decisions, we tend to slip into the habit of repeating these unhealthy behaviours over and over again without learning or changing.

6. Social norms. Peer influence and cultural attitudes can lead to overspending such as ‘keeping up with the Joneses’ and or oversimplifying complex issues.

Which is all food for thought, isn’t it?

Where to next to address these issues?

For financial information and education to be truly useful, we need to consider the end goal of financial capability, and:

  • Link financial education better to everyday life examples
  • Find action-based strategies that really work
  • Gain practice in the skills that we have recently learned
  • Examine, monitor and challenge our attitudes, habits and behaviours
  • Regularly revisit our knowledge and strategies


If you’d like to read the full report, it can be downloaded from the RSA website.

Do any for the six main hurdles to financial capability strike a chord with you? I’ve been guilty of a number of them in the past, and definitely still have weak spots I need to manage!

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  1. Hi Penny,

    This is a very interesting article, thanks for sharing with us!


  2. Very helpful article, thank you, Penny. I became addicted to the main shopping channel and spent and spent.. the gods were smiling and my telly went on the blink! I never got into debt with it. Recently I discovered an app for it. No probs, i was over the addiction; well no I was not. However, I did pull myself back from the brink before too much damage was done.

  3. Hi Marine – so glad you liked it! Thanks for letting me know.

    Hello Audrey. Sounds like you’ve had a lucky escape there. Advertisers are so clever now that it’s all too easy to get sucked into making impulse purchase after impulse purchase. Breaking that cycle is something I’m very interested in at the moment.

    Penny x

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