Written by Carly Phillips-Jones

On 18 March 2022, the FCA published a Research Paper exploring the extent to which consumers understand the risks and potential future returns associated with the different ways they can save their money.

The survey included a set of questions that sought to collect the subjective expectations of just under 4,000 individuals across the UK about interest rates on savings accounts, and about housing and stock market returns.

The results indicated that:

  • 38% of consumers are able to assign probabilities to future outcomes and show a high degree of financial sophistication;
  • 29% are able to assign probabilities and show a moderate degree of financial sophistication; and
  • the remaining 33% are either not able to assign probabilities or show a low degree of financial sophistication.

Consumers with characteristics of vulnerability (such as poor numeracy skills, low knowledge or a lack of confidence in managing finances) were found to be more likely to lack the ability to assign probabilities to future returns and to be less financially sophisticated. However, the FCA emphasised the importance of considering that having a characteristic of vulnerability doesn’t necessarily mean that a consumer will have additional or different needs or will suffer harm. In fact, this Research Paper confirms that a substantial number of consumers with specific characteristics of vulnerability show considerable financial sophistication. This suggests to firms that targeting support specifically towards those with low financial sophistication might be more effective at improving saving decisions, rather than focusing exclusively on other characteristics of vulnerability.

The FCA confirmed that its next Research Paper will be exploring how the expectations of consumers are formed and, specifically, whether variation in local conditions is related to the way people form expectations about stock market and housing market returns. This will help the FCA further understand whether negative experiences make people more reluctant to save in particular ways, which may be detrimental to future outcomes.