What is financial capability?

The Scottish Government's 'Financial Capability Discussion Paper' (2010) offers a definition of financial capability as:

• the motivation to efficiently manage finances and effect change

• day-to-day management of finances, for example, effective budgeting and use of a bank account

• planning ahead for retirement, other life transitions and unexpected events, for example, by saving

• efficient selection of financial products and the ability to understand these products, for example, by comparing repayment costs before taking a loan

• knowing where, and how, to seek appropriate financial advice

What should a financially capable person be able to do?

At a basic level, a financially capable person will be able to:

• understand bank statements, bills, payslips and other basic financial records

• understand the implications of borrowing money and that it must be paid back, usually with interest

• use cash and non-cash methods of payment

• manage a day to day budget and prioritise essential and non-essential spending

• understand why we pay tax and national insurance and how this affects wages

• understand percentages and how interest rates have an impact on the amount of money borrowed or saved

• seek advice when needed, knows where to go to get it and has the confidence to ask

Context for developing literacy and numeracy skills

Building financial capability often involves the development of the literacy and numeracy skills which underpin everyday financial activities, such as reading and understanding written and numerical information and filling in forms. Many of the individuals and groups for whom improved financial capability can have a significant impact may also be those in need of literacy and numeracy support.

At the same time, money provides a context which is relevant to adults' lives and approaches to adult literacies in Scotland acknowledge that people are likely to learn more effectively if that learning is relevant and rooted in real, everyday contexts.

Strengthening communities

Financial capability work can have an important role in the development of communities too. The projects featured in the case studies on this website adopt many of the principles of community learning and development work, which seeks to empower individuals and groups and to promote participation, inclusion and equal opportunities for those individuals and groups.

They also demonstrate the role of effective partnership working in achieving significant positive outcomes for individuals and groups, and in particular those who are at points of transition in their life, for example, starting or leaving work, having children, coming into the country as a migrant worker, going into or leaving prison, or being made redundant.