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Executive Summary
Introduction
1. This topic report on Financial Inclusion was commissioned from GEN Consulting by the Scottish Executive The aim of the study was to provide the Scottish Executive Development Department with information concerning the extent of financial inclusion across Scotland, based on evidence from the Scottish Household Survey ( SHS). This was to be augmented, where appropriate, by other data sources in order to inform, and provide an evidence base for, the future development of the Executive's financial inclusion policy.
Method
2. This task was approached through an initial review of policy and literature relating to financial inclusion, a review of relevant datasets that could be used in support of the study, a review of descriptive and inferential statistics from the SHS relating to financial inclusion and the development of financial inclusion benchmarking templates at national and Scottish local authority level.
Review of policy and literature
3. The review of literature and policy revealed that debate surrounding financial exclusion has moved on rapidly in recent years, from a focus upon physical access to one that is concerned with wider issues including knowledge and understanding. Whilst governments in some countries have attempted to address financial exclusion through legislation, the approach of the United Kingdom has been twofold:-
- To set up specific initiatives to try to promote financial inclusion; and
- To work with the banks on a voluntary basis to try to get them to make basic services available to those who might otherwise be denied access.
4. These initiatives have been set against a growing literature that has explored the characteristics of the financially excluded, including their socio economic status and location. Although, at the margins, the characteristics of the financially excluded can be quite complex, what generally emerges is a strong relationship with indicators of poverty and with those areas where poverty is concentrated.
Access to financial services
5. Access to financial services in Scotland has generally improved in recent years. However, it is apparent that there is a relationship between financial exclusion and poverty and deprivation. This is apparent both spatially and in terms of the socio economic characteristics of those who are excluded. However, policy initiatives, such as the Post Office Card Account, which is due to be withdrawn in 2010, seem to have been instrumental in giving those who are most likely to be financially excluded access to basic banking facilities.
6. Analysis revealed polarisation in the characteristics of credit union members. At the one extreme are those who are financially included, in that, in addition to access to credit union facilities, they make use of many other financial services. At the other extreme are those members who make use of services which tend to be associated with financial exclusion, such as Provident. This polarisation reflects the characteristics of credit unions in Scotland
7. The analysis also revealed a correlation between financial inclusion and geography. In particular it seems that the more remote the area the greater the extent of financial inclusion as measured by such things as having a bank account. It is thought that technological advances may have aided this development.
Access to financial products
8. Analysis of the use of financial products again found that there was a close correlation between the ability to access (and use) products, and indicators of deprivation, both spatially and aspatially. One consequence of this is that there is considerable cross over between the characteristics of those who do not use one product and those who do not use others.
9. The use of some products, for example mortgages, is clearly a reflection of housing tenure, which is in turn related to income, while use of various sources of credit and borrowing can also be related to one's stage in the life cycle. Lack of access to various sources of credit may not always impose a burden on people. Given this, the policy implications of some of these findings may be limited. Where there may, however, be an area where intervention could be justified is in the take up of home contents insurance. Currently this seems to bear a close inverse relationship to deprivation.
Savings and financial management
10.SHS data showed that a large minority of people within Scotland have no savings, although this was found to be proportionately no different to the general situation in the UK. Unsurprisingly, the level of savings is associated with such factors as home ownership, economic status and age.
11. Given that the definition of financial exclusion now extends to cover education and knowledge, it seems as if there are increasing numbers of people who may not be excluded based on traditional definitions of access but who may be considered so when their ability to manage their finances is considered. An increase in the numbers of sequestrations and Protected Trust Deeds registered would seem to indicate that the inability to manage money is increasing.
12. These developments are seen to have placed pressure on the money advice services. There also seems to be evidence of a gap in these services, particularly affecting those who are on modest earnings. The increase in the numbers of those with severe financial problems is likely to make it even harder for this group to obtain advice.
Benchmarking Templates
13. A series of templates were devised that looked at the extent of exclusion across the 32 Scottish local authorities and compared Scotland to other parts of the Great Britain and the United Kingdom.
14. The local authority templates ranked authorities according to access to 3 financial products and perceptions of financial capability. Analysis of the relationships between these and the extent of deprivation in each authority found that:-
- The various measures of financial inclusion/exclusion only partially reinforced one another. For example individual authorities might do well on one measure but perform far worse on others; and
- The relationship between financial exclusion and deprivation at the local authority level was not particularly strong.
15. The implications were felt to be that measures to tackle exclusion need to be multi-faceted as it seems as if the various types of exclusion only partially overlap and spatial targeting at the local authority level using measures of deprivation may only be partially successful.
16. The templates that compare Scotland to other countries and regions in the United Kingdom and Great Britain can be used as baselines. As more up-to date information becomes available, movements in Scotland's relative position can be monitored.
Recommendations
17. A number of Recommendations were made relating both to further areas for research and changes to the SHS. In terms of research:-
- Given the link between poverty and financial exclusion further analysis of data relating to the 15% most deprived data zones may be justified;
- Given that the Post Office Card Account seems to have been successful in reaching those without other sources of bank account, research on Card Account users may be useful given plans to phase it out; and
- As age seems to be a factor in financial inclusion, work to analyse the uptake of financial products and services amongst older people may be appropriate.
18. The SHS is the key sources of Scottish data on financial inclusion. To increase its utility it is recommended that:-
- Consideration be given to asking questions on such things as access to, and use of, financial products by all members of a household, rather than just the highest income householder or their partner;
- Questions on access to bank accounts should ask about the type of account;
- Further questions should be included about financial capability;
- Questions on credit union membership should establish the type of union that the respondent belongs to;
- The question about use of finance companies should seek to differentiate between high cost lenders, such as Provident, and more mainstream finance companies;
- Questions should be included about financial advice; and
- Questions should be added about household or personal debt using the same methodology as used in the Families and Children Study.
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