The Cascading Effects of Numeracy and Over-indebtedness on Family Wellbeing: A Matched Samples Analysis

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This project focusses on the role of numeracy in helping families manage problem debt and mitigate its deleterious effects on financial and emotional wellbeing. Over-indebtedness is a pressing social problem, following years of low interest rates and weak wage growth that fuelled steady increases in unsecured borrowing. In 2017, UK households entered a net deficit for the first time in 30 years, having spent £900 more, on average, than they had earned in income (ONS, 2018a). Debt can reflect positive investments in the future, but reliance on credit to maintain consumption has debilitating effects on families' long-term financial wellbeing (Hodson, Dwyer, & Neilson, 2014). One in eight adults have no cash savings (Ripley & Watmough, 2018); one in six find it difficult to pay bills on time and/or are in arrears (MAS & CACI, 2017). Numeracy reflects the extent to which individuals have the skills and confidence needed "to use numbers and data to make good decisions in daily life" (National Numeracy, 2019). Innumeracy is a pervasive social challenge, exacerbating low productivity levels and perpetuating low financial capability in the population (FCA, 2015). Thirty percent of employers surveyed report dissatisfaction with school leavers' basic numeracy skills (CBI/Pearson, 2017), and nearly four in five adults in the UK lack the mathematical skills needed to perform basic financial calculations (Bhutoria, Jerrim, & Vignoles, 2018). Innumeracy renders families vulnerable to over-borrowing and under-saving, as people often underestimate the total costs of debt. When bills mount, lack of confidence around numbers and finances limits families' abilities to reduce expenses and pay off debts in an affordable manner. Over-indebted families risk entering into debt spirals, as repayments necessitate further borrowing. Numeracy and over-indebtedness are each closely tied to poor mental health and other negative outcomes. Despite these links, financial literacy and debt counselling interventions rarely consider numeracy when devising strategies to help families eliminate problem debt (MAS & CACI, 2017). Furthermore, research highlights large gender and socioeconomic shortfalls in numeracy, but there is scant evidence on ethnic variations in either numeracy (Furnham & Cheng, 2018; Whitley et al., 2016) or over-indebtedness. This lack of knowledge impedes the development of effective policies to alleviate debt crises, as policymakers lack information on groups in particular need of support. To isolate the causal role of numeracy in helping families achieve financial wellbeing, I will use propensity score analysis to assess whether numeracy influences the likelihood that families acquire problem debt. Propensity scores approximate experimental conditions, removing confounding factors such as social class that could bias the relationship between numeracy and over-indebtedness. Findings will further our understanding of how interventions can help families develop financial capability and may inform the design and delivery of interventions serving over-indebted families. To further understanding of problem debt and its effects on household functioning in the UK, I will use Structural Equation Modelling to test the relationships between debt, mood, relationship quality, parenting behaviours, and youth development. Results will expand our understanding of pathways by which problem debt affects individuals' subjective wellbeing and interpersonal relationships. To address the lack of research on ethnicity and gender as it relates to numeracy, debt, and wellbeing, I will examine whether ethnic and gender differences exist in levels of numeracy and use of unsecured credit. I will assess whether ethnicity and/or gender moderate relationships between problem debt, wellbeing, and relationship quality. Findings will provide insight into factors to consider when designing interventions to serve ethnically diverse populations.