FCA Occasional Paper 58 – Understanding consumer financial wellbeing through banking data

Regulatory Updates | 20/10/20

The Financial Conduct Authority has published Occasional Paper 58, which considers how differences in consumers’ financial wellbeing change with the objective state of their finances. The FCA’s study is one of the first to take advantage of linking data from customer financial records with self-reported information, providing insights into how these measures are related. The FCA’s findings indicate that those with the highest self-reported wellbeing had higher incomes, higher average account balances and were less likely to use their overdraft facility. However, the research did not find a relationship between income volatility and wellbeing, in contrast to policy and research literature that links income volatility to lower wellbeing.

The FCA believes that matching data on financial behaviour with subjective perceptions creates substantial opportunities to improve consumer welfare. Using similar datasets, which could also include a broader and more detailed set of variables, firms could predict the financial wellbeing of their clients and implement measures to help individuals experiencing financial hardship. The FCA also believes that a promising area of research is the divergence between subjective and objective measures of financial wellbeing. In times of economic uncertainty, exploring these findings could be important in targeting groups of consumers who would benefit most from extra support.