Context

A government priority in New Zealand is to build the financial capabilities of New Zealanders, to help improve the wellbeing of families and communities, reduce hardship, increase investment and grow the economy. The government developed the ‘National Strategy for Financial Capability’ to help provide all New Zealanders with the skills to get them ahead financially and make informed judgements and effective decisions about the use and management of their money.

A key part of the strategy is to help build the capacity of people living in hardship. The Ministry of Social Development (MSD) is working on this area and is reconsidering how it funds and supports services that it delivers to the public. The MSD therefore required a review of existing evidence to help it to develop how it designs and implements services.

The study

The MSD commissioned Evaluationworks to undertake a literature review of the current research on frameworks and approaches that ‘work’ in building up the financial capability of individuals living in financial hardship. It aimed to identify who experiences financial hardship in New Zealand, which approaches providers use to build up people’s financial capability, and which interventions are most effective in building up the financial capability of those people who are in financial hardship.

The review aimed to provide a descriptive, rather than analytical, account in order to address the research aims. The authors reviewed literature that had been collected by the MSD’s ‘Community Investment ‘Safe Communities’ team’, and searched for additional literature where gaps were identified. The authors reviewed a wide range of documents, including:

• Meta-analyses;
• Literature reviews;
• Qualitative research;
• Government reports;
• Reports of working parties;
• International reports;
• Web pages;
• Discussion documents based on research.

Key findings

• Despite its prevalence within financial literacy initiatives, there is mixed evidence regarding the effectiveness of this approach.
• The review found that some financial literacy approaches operate on the assumption that education can create rational financial decision-makers. However, this does not recognise the stress and complexities that vulnerable people living in hardship experience (in particular that they tend to focus on what they ‘need’ in the immediate future, rather than on the longer-term).

• The evidence on the relationship between early childhood experiences and financial behaviour in later life is strong. There is agreement amongst experts that appropriate interventions should begin early on in children’s lives, so that they can begin to learn financial skills and adopt positive financial behaviours that in turn help to mitigate against intergenerational transmission of negative attitudes and behaviours.
• Evidence from behavioural economics indicates that there are three key components needed to support financial behaviour change: capability, opportunity and motivation.

• The evidence suggests that the current New Zealand marketplace is not an inclusive environment for many vulnerable families, and there are many barriers to vulnerable families in accessing mainstream sources of credit.

• The research suggests that macro- and micro-level approaches can help families address hardship. From a macro perspective, increasing household income is key to enabling people to live within their means day-to-day and plan for the future. At the micro-level, facilitating families to build social networks, providing social support at times when families are in crisis, and providing access to local community support can help vulnerable families to build up financial resilience.

Points to consider

• The authors were constrained by time and resource limitations, reflecting how much they could review. Therefore, the literature review is not exhaustive.
• It was beyond the scope of the review to assess and report on the quality or credibility of the evidence. To mitigate against drawing on poor quality evidence, the authors prioritised well-known and widely referenced financial capability commentators and researchers, reviews, and publications.