Financial Capability
Financial capability is a term descriptive of people's knowledge, skills, confidence and motivation to manage their money well. It refers to the ability and desire to choose appropriate financial products, using financial services and manage money effectively.
Financial capability is distinct from the older concept of financial literacy in that it is less theoretical and attempts to describe some of the issues of consumer confidence and attitudes to money in addition to basic financial management skills. In a financial capability training session there will be less emphasis on numeracy and more on financial behaviour than in a traditional financial literacy class.
Financial capability is a separate but related issue to financial exclusion. A person can be highly financially capable but financially excluded or vice versa. That said poor financial capability is often an indicator and a cause of financial exclusion and increased financial inclusion has been shown to lead to greater financial capability (click here for more information).
A NOTE ON BUDGETING
Many organisations approach a financial capability trainer looking to get sessions for their service users on budgeting and making ends meet. Yet research has shown time and again that making ends meet in the short term is an area of financial capability at which people on low incomes are often extremely adept. The definition of budgeting I use includes an element of financial planning, for example planning for irregular expenses and beginning to save for larger future purchases or for emergencies. This builds on the skills many participants already have and can show remarkably rapid results in improving their financial situations.