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Financial Education > Finacial Vulnerability Index > Flashcards

Finacial Vulnerability Index Flashcards

1
Q

Metrics of Financial well-being

A
  1. Ability to manage daily finances
  2. Resilience to economic shocks
  3. Capacity to pursue financial opportunities (to move ahead)
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2
Q

What does the Lowell Financial Vulnerability Index do?

A

Measures the overall extent of household vulnerability (ability of households to manage their daily finances and buffer against economic shocks) in the UK, its individual nations, regions, and parliamentary constituencies

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3
Q

FVI Findings - what period of time do the findings cover?

A

Q3 2017 - Q2 2020
Q3: July - September 2017,
Q2: April - June 2020

Brexit transition to the early months of the pandemic

Period 1: Exercising of article 50, Period 2: Brexit negotiations, Period 3: Covid-19

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4
Q

Most financially vulnerable places?

Region, places, & highest relative increase

A
  1. North East England = most financially vulnerable region
  2. Blackpool South, Liverpool Walton, Middlesborough = 3 most FV constituencies in Q2 2020
  3. London = highest increase in financial vulnerability during pandemic (though FV went up everywhere)
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5
Q

Earlier Indexes, Year Published and Findings

A

University of Bristol:
UK Financial Wellness Index
Measured average financial wellness of the UK in 2015

Found that the UK was generally financially well, but there was ample room for improvement

ONS
2017
For first time since 1988, UK households became net borrowers in 2017 (first time in nearly 30 years)

Financial Conduct Authority
2019/20
Borrowers who fall into distress tend to be clustered in urban areas

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6
Q

What does Lowell’s FVI provide as compared to earlier indexes?

What does it offer as compared to earlier indexes?

A

Provides A NEW household Financial Vulnerability Measure (capturing early effects of the pandemic) at the parliamentary constituency level, regional level, national level, and whole UK level

This provides new data for LOCAL, REGIONAL, and NATIONAL policy makers to better understand the financial health of UK residents and to see where people are struggling the most so that they can target resources to areas of high need

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7
Q

What is the index based on?

A

It is based on 6 components that measure a households ability to

(1) manage daily finances and
(2) it’s resilience to economic shocks

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8
Q

What are the 6 components that the FVI is based on?

A
  1. Carrying defaulted debt
  2. Using alternative financial products
  3. Claiming social benefits
  4. Lacking emergency savings
  5. Holding a high cost (subprime) loan
  6. Relying heavily on credit
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9
Q

What data does Lowell use to provide the 6 components?

What is the methodology?

What does the FVI provide?

A
  1. Lowell’s research and data
  2. 2017 UK Financial Lives Survey
  3. Data from DWP
  4. Data from ONS

Methodology (how was the index created):

they standardised each component of the data, weighted each component using factor analysis, and normalised the index from 0-100

The index provides:

RELATIVE financial vulnerability levels that can be compared across geography and time

It does NOT provide and ABSOLUTE measure of FV within a geographic area

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10
Q

What was the methodology for creating the FVI dataset?

A

Methodology (how was the index created):

they standardised each component of the data, weighted each component using factor analysis, and normalised the index from 0-100

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11
Q

What does the FInancial Vulnerability Index SCORE provide?

Is it Relative or absolute?

A

The index provides:

RELATIVE financial vulnerability levels that can be compared across geography and time

It does NOT provide an ABSOLUTE measure of FV within a geographic area

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12
Q

How did FV change in the UK (Q3 2017 - Q2 2020)?

A
  1. FV was Stable in the period after Brexit’s Article 50 was triggered (beginning Britain’s withdrawal from the economic block)
    Q3 2017 - Q3 2018
    - FVI increased 33.8 to 35 (3.5% increase)
  2. FV Increased as Brexit negotiations unfolded
    Q3 2018 - Q4 2019
    - FVI increased 35 to 38.6 (10% increase)
  3. FV Accelerated dramatically with start of Covid 19 pandemic
    Q1 2020 - Q2 2020
    - FVI increased 38.6 to 46.2 (16% increase)
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13
Q

How many more people were in poverty by Summer 2020 because of the covid 19 pandemic?

A

444,000 more people were in poverty

Legatum Institute 2020

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14
Q

From August - October 2020 how many more people were unemployed compared to the year earlier?

A

280,000 more people were unemployed

ONS 2021

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15
Q

How many more people had low financial resilience between March and October 2020?

A

The number of people with low financial resilience increased by 3.5 million people from March - October 2020

Financial Lives Survey (FCA 2021)

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16
Q

What are the time varying components of the FVI?

A
  1. Defaulted on debt
  2. Claiming social benefits
  3. High cost loans
  4. High credit use
17
Q

Non time varying components

A
  1. Using alternative financial products

2. No emergency savings

18
Q

Which components of the FVI increased?

A

All the time varying components increased

  1. Share of adults claiming benefits
    - biggest increase due to job loss and furlough
  2. Use of Credit
    - second largest increase. People in financial distress relied on credit cards to get them through economic shocks. Households with higher incomes spent less, saved, and paid off debt
  3. Defaults on debts
  4. High cost loans
    - these both increased but at a much smaller proportion to the others
19
Q

In part, why were households in the North East most financially vulnerable during the period of study?

A

Because the north east has the

(1) highest unemployment rate of all the regions and
(2) one of the highest shares of people on low incomes

20
Q

Where was the largest increase in household Financial Vulnerability following the onset of covid 19?

What is the main reason for this?

A

London experienced the largest increase in household financial vulnerability following the onset of covid 19

There was an overall 41% increase in its FVI score from Q4 2018 - Q2 2020

This is mainly explained by an increase in the share of adults claiming social benefits (job loss and furlough - service sector jobs)

21
Q

What percentage of London jobs are in the service sector?

A

92%

22
Q

Where were adults most likely to say their financial situation had worsened during the pandemic?

A

London

Financial Lives Survey (FCA 2021) index

23
Q

Which constituencies were the most financially bulnerable in Q2 2020?

A

Blackpool South, Liverpool Walton, Middlesbrough

24
Q

Of the constituencies with the most FV (Blackpool South, Liverpool Walton, Middlesbrough) what wre the worst affected FVI components?

A

1 in 4 were Lowell consumers in default on a loan

1 in 4 held high-cost loands

more than 1 in 4 claimed social benefits

25
Q

What other economic hardship measures are most visibile in the constituencies with the most FV (Blackpool South, Liverpool Walton, Middlesborough)?

A

They all carry high levels of financial deprivation

Middlesbrough and Blackppol rank as the most deprived districts as measured by income deprivation affecting children

26
Q

Where were all the 5 parliamentary constituencies with the largest financial vulnerability increases between Q4 2019 and Q2 2020? What are there names?

A

All in London

Tottenham, Walthamstow, East Ham, Brent Central

27
Q

Staggering Tottenham Stat regarding unemployment

A

Q4 2019 - fewer than 1 in 10 adults applied for social benefits during Q4 2019 (11.3%)

By Q2 2020, more than 1 in 4 applied for social benefits (27.5%)

28
Q

What are other indicators of economic distress?

A

UK unemployment rate

Share of UK adults reporting low financial satisfaction

English index of deprivation

29
Q

There is only a moderately positive correlation between the FVI which indicators of economic distress (and — and —). What does this show?

A

There is only a moderately postitive correlation between the FVI and the unemployment rate and reports of low financial satisfaction.

This shows that FV cannot be solely measured by employment status or level of satisfaction with ones finances

30
Q

There is a strong positive correlation between the FVI and which indicator of economic distress? What does this show?

A

There is a strong positive correlation between the FVI and the English Index of Deprivation?

This shows the importance of a multifaceted approach to measuring household financial wellbeing

31
Q

What is the English Index of Deprivation?

A

Deprivation is defined as the general absence of resources (including but not limited to income and employment). The EID measures this

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