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Financial Capability
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Financially capable persons keep track of their money, plan ahead, and are able to make informed decisions about their finances, understanding the risks and benefits of particular options. The Money Advice Service have identified 3 key outcomes of financial capability:
- Keeping track of money i.e. to live within means and get out of problem debt.
- Planning ahead i.e. by having enough savings, being prepared for later life, and protecting against the unknown.
- Making informed decisions, i.e. for financial choices and products.
A person’s financial capability is best judged by their actual behaviour. Someone who has the knowledge and skills to manage their personal finances well would be considered to be financially literate but not financially capable if they do not use this understanding to make informed decisions. For example, someone might know about the importance of shopping around before buying financial products or services, and know how to do so, but cannot be regarded as financially capable if they are not motivated to put this into practice. Being financially capable is about being able to make reasonable decisions that suit a person’s situation and preferences.
