on the money: misperceptions and personal finance
TRANSCRIPT
1
2
The survey...
• …asks people to estimate what they think the “reality” is
on a number of personal finance and broader economic
issues…
– Builds on our joint programme of work exploring
perception gaps on social policy issues
– Purpose is to understand reasons for
misperceptions, their impact and what can do to raise
knowledge and get to better financial outcomes
• Based on 1,100 interviews conducted online, 5-9 June
2015, weighted to population profile
• Focus on results for the “average person” ie looking at
median results…
3
We think
we’re
fairly
good at
this...
4
The public are fairly confident in their own financial knowledge 2%
3%
8%
22%
28%
22%
14%
1
2
3
4
5
6
7
Very low
Very high
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London
Q. On a scale from 1 to 7, where 1 means very low
and 7 means very high, how would you rate your
own financial knowledge (by which we mean your
understanding of issues affecting your own personal
finances)?
5
And We do
mostly get
the basic
maths of
discounting
right...
Base: Split sample 547 GB adults Source: Ipsos MORI/King's College London
£5 0 0
Q. Suppose you saw the same television on sale at a discount
in two different shops. The original price of the television is £500.
One shop is offering a discount of £100 off the original price, the other
is offering a discount of 10% off the original price. Which is the
cheaper price - £100 off or 10% off?
91%
1%
7% 1%
Don’t know
The Same
10% off
£100 off
6
But more of
us struggle
as the maths
gets harder...
Base: Split sample 545 GB adults Source: Ipsos MORI/King's College London
Q. Suppose you saw the same television on sale at a discount in
two different shops. The original price of the television is £500.
One shop is offering a discount of £80 off the original price, the
other is offering a discount of 15% off the original price. Which is
the cheaper price - £80 off or 15% off?
85%
5%
7% 4%
£5 0 0
Don’t know
The Same
15% off
£80 off
7
we have a good grasp of the cost of living – on average... 5%
6%
7%
24%
20%
11%
6%
14%
3%
6%
0-19p
20-29p
30-39p
40-49p
50-59p
60-69p
70-79p
80-89p
90-99p
£1+
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and mysupermarket.co.uk as
of w/c 26th June 2015
? ?
? ?
? £
? ?
Q. How much is a pint of milk?
Actual cost: 49p
Average guess: 50p
Although many of
us are way too
high or low…
8
...Still Better than some...
“I don’t know – about 80 pence? “I don’t know –
My wife buys most of it”
Jim paice, when
Agriculture and food minister
Boris Johnson
...I know the price of a bottle of champagne – how about that?”
9
But we have a number of misperceptions that may prevent people from making good financial decisions... 3 big life events...
10
10%
16%
15%
20%
13%
5%
8%
6%
7%
1...We massively underestimate the cost of raising a child
Source: Ipsos MORI /King’s College London and LV=
£
Base: 1100 GB adults 16-75
Up to £19,999
£20,000-£29,999
£30,000-£49,999
£50,000-£99,999
£100,000-£149,999
£150,000-£199,999
£200,000-£249,999
£250,000-£499,999
£500,000+
…if this were true we’d
only be spending £2.60 a
day on average…
Q. On average, what do you think is the cost of
raising a child in Great Britain from birth until they
reach the age of 21 (to the nearest £1,000)?
…parents worse at estimating: average guess only £40,000
Actual cost: £229,000
Average guess: £50,000
11
Yet we overestimate the cost of childcare
Q. On average, what do you think is the total cost
per week of 25 hours of nursery care for a child
under two years old in Great Britain (to the nearest
3%
7%
18%
13%
16%
14%
10%
2%
4%
1%
12%
Base: 1100 GB adults 16-75
Up to £49 p/w
£50 - £99 p/w
£100 - £149 p/w
£150 - £199 p/w
£200 - £249 p/w
£250 - £299 p/w
£300 - £349 p/w
£350 - £399 p/w
£400 - £449 p/w
£450 - £499 p/w
£500+
Actual cost: £115pw
Average guess: £200pw
Source: Ipsos MORI/King's College London and Family and Childcare Trust
22% of Londoners think care costs over £500 a week in the UK – a reflection of the higher costs in the capital?
£)?
12
A media effect?
13
2... and We’re not much better at estimating the costs of university education
Q. On average, with how much debt do you think
today’s student will leave university, including tuition
fee loans (to the nearest £1,000)?
11%
21%
23%
19%
12%
6%
2%
6%
Up to £9,999
£10,000 - £19,999
£20,000 - £29,000
£30,000 - £39,000
£40,000 - £49,000
£50,000 - £59,000
£60,000 - £69,000
£70,000+
Base: All in England (948) Source: Ipsos MORI/King's College London and the Institute of Fiscal Studies / the Sutton
Trust
Actual debt: £44,000
Average guess: £21,000
Young people slightly more realistic, but still underestimate: £30K
14
Q. On average, how long do you think that people
turning 65 in the UK can expect to live in retirement
before they die?
Actual figure: 23 yrs
Ave guess: 19 yrs
Good news!
We live
longer than
we expect
to... 5%
14%
24%
38%
10%
9%
Up to 5 years
6-10 years
11-15 years
16-20 years
21-25 years
26 years+
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and ONS
15
Q. Assuming they were claiming a full state
pension, how much do you think that someone
would need to have in a private pension savings pot to
get a total income of around £25,000 a year after they
stopped work (to the nearest £1000)?
3... But we
massively
underestimate
what we need
to save for
retirement
12%
10%
7%
10%
11%
11%
12%
6%
20%
Up to £14,999
£15,000-£24,999
£25,000-£49,999
£50,000-£99,999
£100,000-£149,999
£150,000-£249,999
£250,000-£349,999
£350,000-£449,999
£450,000+
Source: Ipsos MORI/King's College London and This is Money pensions calculator Base: 1100 GB adults 16-75
Actual figure: £315,000
Average guess: £124,000
Steep learning curve… 65+ year olds = £250k 50-64 year olds = £150k
16
Q. Government research shows that a number of
people are not saving enough for retirement. What
percentage of working age people do you think are
saving too little?
Actual figure: 43%
Average guess: 65%
Despite this
underestimate,
we think
undersaving is
the ‘norm’... 3%
3%
6%
10%
13%
13%
16%
23%
9%
4%
0-10%
11-20%
21-30%
31- 40%
41-50%
51-60%
61-70%
71-80%
81-90%
91-100%
Source: Ipsos MORI/King's College London and DWP Base: 1100 GB adults 16-75
17
This matters... we know how much social norms can influence behaviour... “pluralistic ignorance”
18
We do get some things right...
19
Q. To the best of your knowledge, how much do you think
the average UK household owes in debt (to the nearest £1000)? That
is, the total money owed per UK household – including mortgages.
15%
13%
17%
17%
14%
8%
17%
Up to £9,999
£10,000 - £19,999
£20,000 - £49,000
£50,000 - £99,000
£100,000 - £149,000
£150,000 - £199,000
£200,000 +
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and The Money Charity
household
debt...
Actual figure: £55,000
Average guess: £50,000
Although some extreme
guesses…
20
House prices... Q. To the nearest £1000, what do you think is the
average house price in the UK?
£
3%
5%
13%
34%
20%
16%
6%
3%
Up to £49,999
£50,000- £99,999
£100,000 - £149,999
£150,000 - £199,999
£200,000 - £249,999
£250,000 - £299,999
£300,000 - £499,999
£500,000+
Actual cost: £195k
Average guess: £190k
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and Nationwide
29% of Londoners think the
average UK house price is
over £300,000
21
Perhaps in part because of this...
22
...But we’re very wrong on the SCALE OF deposits OR EQUITY
Q. To the best of your knowledge, how much do you
think is the average deposit to buy a house in Great Britain (to the
nearest £1000)? That is, the up-front payment that the buyer puts
down at the time of the purchase.
13%
33%
28%
12%
4%
5%
2%
4%
Up to £9,999
£10,000 - £19,999
£20,000 - £29,000
£30,000 - £39,000
£40,000 - £49,000
£50,000 - £59,000
£60,000- £99,999
£100,000+
Actual figure: £72,000
Average guess: £20,000
Source: Ipsos MORI/King's College London and the Mortgage Advice Bureau Base: 1100 GB adults 16-75
One in five young people
think deposits are less
than £10K
23
And we
underestimate
renting costs
both
outside
london...
Q. Outside of London, what do you think is the
monthly cost of renting a home in England and
Wales (to the nearest £50)?
5%
2%
3%
12%
24%
19%
14%
10%
2%
9%
Up to £199
£200 - £299
£300 - £399
£400 - £499
£500 - £599
£600 - £699
£700 - £799
£800 - £899
£900 - £999
£1,000+
Actual cost: £774
Average guess: £600
Source: Ipsos MORI/King's College London and LSL Property Services
Plc
Base: All those in England and Wales (1002).
24
And in the
capital...
Q. And what do you think is the monthly cost of
renting a home in London (to the nearest £50)?
18%
18%
22%
15%
16%
11%
Up to £799
£800 - £999
£1,000 - £1,199
£1,200 - £1,499
£1,500 - £1,999
£2,000+
Actual cost: £1,204
Average guess: £1,000
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and LSL Property Services plc
Londoners themselves
are almost spot on – average guess = £1,200
25
We’re very accurate on the average full time salary before tax...
Q. To the best of your knowledge and to the
nearest £1000, what do you think is the average full-
time annual salary before tax, in the UK today?
3%
5%
16%
25%
31%
8%
4%
3%
6%
Up to £9,999
£10,000 - £14,999
£15,000 - £19,999
£20,000 - £24,999
£25,000 - £29,999
£30,000 - £34,999
£35,000 - £39,999
£40,000 - £44,999
£50,000+
Actual cost: £27,000
Average guess: £25,000
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London ONS
26
...But we overestimate how many of us are very highly paid
Q. What percentage of the UK population do you
think are liable to pay the top rate of income tax?
That is, people who earn £150,000 or more each
year?
Actual figure: 1%
Average guess: 10%
10%
6%
16%
23%
10%
11%
6%
18%
Up to 2%
3-4%
5-6%
7-10%
11-15%
16-20%
21-25%
26%+
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and ONS
27
...And THEN
also wrong
on what this
group
contributes...
Q. And what percentage of all the income tax
paid by the total population do you think this
group that earns £150,000 or more each year
contributes?
11%
16%
16%
17%
13%
12%
7%
8%
0-2%
3-5%
6-10%
11-20%
21-30%
31-40%
41-50%
51%+
Actual figure: 28%
Average guess: 20%
Source: Ipsos MORI/King's College London and ONS Base: Split sample - all those in half sample B (550).
28
...And when told it’s only 1%...
Q. Around 1% of the UK population earn £150,000
or more each year. What percentage of all income
tax paid by the total population do you think this group
that earns more than £150,000 per year contribute?
18%
23%
18%
12%
9%
8%
6%
7%
0-2%
3-5%
6-10%
11-20%
21-30%
31-40%
41-50%
51%+
Base: Split sample - All those in half sample A (550). Source: Ipsos MORI/King's College London and ONS
Actual figure: 28%
Average guess: 10%
29
we also overstate how many of us claim out of work benefits...
Q. At present out of every 100 people of working age, how
many do you think are claiming out of work benefits? By out
of work benefits we mean benefits for people who are not in work
because they are unemployed, disabled, carers or single parents.
31%
21%
15%
12%
7%
13%
Up to 9
10 - 19
20 - 29
30 - 39
40 - 49
50 +
Actual figure: 10 / 100
Average guess: 15 / 100
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and ONS
30
And think it’s very similar to 2000 – when actually it has declined
Q. Fifteen years ago (the year 2000), out of every
100 people of working age, how many do you think were
claiming out of work benefits then?
33%
26%
16%
9%
6%
9%
Up to 9
10 - 19
20 - 29
30 - 39
40 - 49
50 +
Actual figure: 13 / 100
Average guess: 15 / 100
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and ONS
31
Q. Which of the following do you think is the current
base interest rate of the Bank of England? Half of us
know the
current base
interest
rate... 13%
49%
8%
8%
4%
1%
16%
0%
0.1%
0.5%
1%
2%
5%
10%
Don’t know
Prefer not to say
Source: Ipsos MORI/King's College London and Bank of England Base: Split sample - all those in half sample B (550).
Actual figure: 0.5%
32
Q22. Over the past forty years – going back to
1975 – what do you think the average Bank of England
base interest rate has been over this time (to the nearest
percent)?
But we have
got used to
historically
low rates... 16%
18%
13%
9%
17%
6%
5%
5%
11%
Up to 1%
2%
3%
4%
5%
6%
7%
8%
9%+
Actual figure: 7%
Average guess: 4 %
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London and Bank of England 40 YEARS
33
0
5
10
15
20
25
197
5
197
6
197
7
197
8
197
9
198
0
198
1
198
2
198
3
198
4
198
5
198
6
198
7
198
8
198
9
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
low interest rates area relatively recent
trend over the last 40 years
Source: Bank of England
Actual figure: 7%
Average guess: 4 %
34
Q. For the following statements please decide
whether you think they are true or false: Despite being a
key political
issue – there is
confusion
about what has
happened to
the debt and
deficit...
Base: 1100 GB adults 16-75 Source: Ipsos MORI/King's College London
False True 42%
28%
32%
47%
26%
25%
False True Don’t
know
= Correct answer
Only 1 in 5 get both questions right…
Since the coalition government
came to power in 2010,
government debt has gone
down
Since the coalition government
came to power in 2010, the
deficit has decreased
35
“We are paying down britain’s debts...”
January 2013
But We are not the only ones...
36
“The national debt is lower in each of the next few years...”
July 2015
And it’s only getting harder to understand...
37
overall... Financial
Knowledge or
Literacy - Knowledge in the abstract
- e.g. knowing how inflation
works
Money
management
skills - Practical and cognitive
- E.g. budgeting skills
Opportunity - Contextual factors
- e.g. having enough
time/ “cognitive
bandwith”
Only really covered
elements of literacy –
capability also requires
skills and opportunity…
38
... And capability matters...
• …ISER study shows that for men the impact of low financial capability
on life satisfaction is equivalent to being unemployed, for women the
impact is closer to being divorced
• This is a global issue – seen in other countries, over long-term…
• …and becoming more important as more responsibility for financial
decisions falls to individuals rather than employers/the state
• Two approaches: i) raise knowledge through education/literacy training
or ii) adapt interactions in a way that works with behavioural biases –
need both
• But also “Political Ignorance” implications: informing people sufficiently
to hold government/others to account – a real challenge, but can learn
from what we get right/wrong…
39
Notes on the data
• Where an amount is asked, respondents were asked
to write in an exact value (unless specified)
– The banding has been added at the analysis stage
for ease of interpretation
• Where responses do not sum to 100, this is due to
rounding
• Where specified, averages refer to the median value
(that is, the response from the respondent in the
middle of a ranked distribution). As the data includes
some outliers, the median value was chosen over the
mean as a representative of the centre of the data.
Median values, unlike the mean, are unaffected by
outlying measurements.
40
Data sources
• Mysupermarket.co.uk put the price of a pint of milk at 49p in Morrisons,
Waitrose, Asda and Tesco as of 26th June 2015
Education and childcare • The average cost to raise a child to the age of 21 in Great Britain is
£229,215 according to LV= Insurance company’s ‘Cost of a Child’
report. The data are compiled on its behalf by the Centre for Business
and Economic Research: http://www.lv.com/upload/IFA-Rebrand-
2009/pdf/2015/jan/coac-report-final.pdf
• The average cost for 25 hours of nursery care for a child under the age
of two is £115.45 per week according to the 2015 Childcare Costs
Survey conducted by the Family and Parenting Trust http://www.fct.bigmallet.co.uk/sites/default/files/files/Childcare_cost_survey_2015_
Final.pdf#overlay-context=annual-childcare-costs-surveys
• On average, a student will leave University with £44,035 debt. Data are
compiled and analysed by the Institute for Fiscal Studies on behalf of
the Sutton Trust: http://www.suttontrust.com/researcharchive/payback-time/
41
Data sources
Retirement and pensions • The average cohort life expectancy is 22.55 years. Figures based on ONS
historic and projected mortality rate figures http://www.ons.gov.uk/ons/rel/lifetables/historic-and-projected-data-from-the-period-
and-cohort-life-tables/2012-based/stb-2012-based.html
• Average pensioner income is £25,281. Data are sourced from the
Pensioners Income Series (2012/13) published by DWP https://www.gov.uk/government/statistics/pensioners-incomes-series-2012-to-2013
• An individual would need £314,879 in their private pension pot. This
calculation assumes that the individual will buy an annuity with their
pension funds and that the rate for this is £6,000 for every £100,000
saved. It also assumes an individual claims the full state pension paid at
the current rate (£6,145.35 a year). This would mean that their private
pension fund would need to provide them with an income of £18,854 a
year. Annuity rate of £6,000 per £100,00 sourced from the This is Money
pensions calculator http://www.thisismoney.co.uk/money/pensions/article-
1633402/Pension-pot-calculator-How-need-save-retirement.html
42
Data sources
Retirement and pensions • An estimated 43% of working age people are facing inadequate retirement
incomes according to DWP (August 2014 report): https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/223015/i
nadequate_retirement_incomes_july2012.pdf
• This is the latest estimate from DWP on the proportion undersaving. The
analysis excludes certain groups in the working age population, including
people aged under 22 and those with no earnings from 50 to State
pension.
• “Inadequate retirement income” is defined in terms of replacement rates.
Replacement rates are defined as income in retirement expressed as a
proportion of income before retirement. The UK Pensions Commission set
out target replacement rates per income band in their 2004 report.
Individuals who are estimated to have incomes in retirement below the
Pensions Commission target replacement rates are said to have an
“inadequate retirement income” or be “under savers”.
43
Data sources
Housing, debt and interest rates • The average house price in the UK is £195,166 (latest figure for may
2015). Data are drawn from Nationwide’s House Price Index
• http://www.nationwide.co.uk/~/media/MainSite/documents/about/house-price-
index/May_2015.pdf
• Average deposit to buy a house is £72,302. Data are taken from the
National Mortgage Index released by the Mortgage Advice Bureau: https://www.mortgageadvicebureau.com/news/Depositsreachpost-recessionhigh/1039/
• Average debt per UK household is £55,083. Data are sourced from The
Money Charity’s The Money Statistics report (April 2015) http://themoneycharity.org.uk/media/April-2015-Money-Statistics.pdf
• Average cost of renting a home in England and Wales (outside of London)
is £774 and cost of renting a home in London is £1204. Data are taken
from The Buy to Let Index from Your Move and Reed Rains (latest figures
for April 2015) http://www.lslps.co.uk/documents/buy_to_let_index_apr15.pdf
• Current and historic Bank of England base interest rates can be found on
their website: http://www.bankofengland.co.uk/boeapps/iadb/repo.asp
•
44
Data sources
Income, taxation and benefits • Average full-time salary before tax in the UK is £27,200. Data are from the
latest provisional ONS statistics on hours and earnings http://www.ons.gov.uk/ons/rel/ashe/annual-survey-of-hours-and-earnings/2014-
provisional-results/stb-ashe-statistical-bulletin-2014.html
• Expected share of total income tax paid by the top 1% is estimated as
27.5% for the year 2014-15 by HMRC https://www.gov.uk/government/statistics/shares-of-total-income-before-and-after-tax-
and-income-tax-for-percentile-groups
• At present, 9 .8 in every 100 people of working age claim out of work
benefits. In the year 2000, 13.1 in every 100 were claiming out of work
benefits. Data are sourced from ONS Labour Market Statistics (table
BEN01). http://www.ons.gov.uk/ons/publications/re-reference-
tables.html?edition=tcm%3A77-363535
• Current and historic Bank of England base interest rates can be found on
their website: http://www.bankofengland.co.uk/boeapps/iadb/repo.asp
45
Contacts: Name: Bobby Duffy
Email: [email protected]
Telephone: 0207 347 3267
Name: Suzanne Hall
Email: [email protected]
Telephone: 0207 347 3166
Name: Hannah Shrimpton
Email: [email protected]
Telephone: 0207 347 3006