FCA working group recommends 'five financial rules of thumb'
Follows focus group and consumer research
The regulator's Financial Advice Working Group (FAWG) has proposed five financial 'rules of thumb' and 'nudges' designed to help people meet common personal finance needs.
Based on the common phrases 'five fruit and veg a day' and 'a rule of thumb', the proposed 'Financial Five' is a result of one of the Financial Advice Market Review (FAMR) recommendations, which suggested the Financial Conduct Authority's working group design a set of easy-to-follow personal finance rules.
The rules of thumb are meant to be memorable phrases, while a nudge is a "timely prompt from a trusted source" to remind people to act on the rules and make financial decisions.
For each rule of thumb the FAWG has identified an "illustrative nudge" to help people take action in order to follow the relevant rule. The working group set up a "dedicated" rules of thumb and nudges sub-group to lead the project.
The 'Financial Five' are:
1. Clean up your finances regularly
2. Manage your borrowing, don't let your borrowing manage you
3. Save when you can - even a little helps a lot
4. Pile into your pension - it's your future income
5. Other people get help to make the most of their money, so can you
Although it identified 'planning for unexpected life events' as a key area to cover, the working group found it did not resonate well with focus groups and subsequently did not include it in the five rules.
The fifth rule of thumb, however, did test well with consumers, despite the regulator recognising it does not provide guidance on a specific area of personal finance.
Aegon pensions director Steven Cameron showed support for the nudges and argued the fifth rule of thumb was a "particularly important" underpin.
"Those who wish to do the right thing by their finances also need to know where to go for help, support and advice," he said. "Rules of thumb are helpful but people may also want to make sure the action they are taking is appropriate for their personal circumstances."
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