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Chapter Four Financial Products

Introduction

4.1 The purpose of this Chapter is to look at issues around the use of financial products. Financial products are loosely defined as being anything that can be provided to a consumer, such as credit cards or insurance. The Chapter looks at 4 main issues:-

• The use of credit;
• Sources of borrowing;
• Mortgages; and
• Insurance.

4.2 For each of these the differences in geography and the socio-economic characteristics of those using them are analysed. The geographic analysis looks at variations across local authorities, rural:urban differences based on the Executive's 6 fold rural:urban classification and differences based on the levels of deprivation as identified in the SIMD. Socio-economic factors analysed cover the key characteristics of the individuals, such as age, gender, economic status and housing tenure.

Use of Credit

4.3 In 2005 the National Consumer Council ( NCC) estimated that around 7.8 million people were excluded from the mainstream credit market in the United Kingdom. This figure is derived from examination of the number of people who had applied for credit and had been refused on more than one occasion ( NCC, 2005). This was supported by evidence from the Personal Finance Research Centre ( PFRC) which found that 6.2 million people of working age could potentially benefit from the wider availability of affordable credit, whilst 3.3 million lacked ready access to the mainstream credit market The House of Commons, 2006b).

4.4 Use of credit in relation to financial inclusion is a complex issue which appears to have 2 main dimensions:-

• Those who are excluded from the mainstream credit market, through denial by service providers or through personal choice. In these circumstances it is possible that people are forced to rely on more expensive forms of credit or that they may fail to realise the quality of life benefits that could result from the availability of affordable credit; and
• Those who receive credit from mainstream providers which exceeds their ability to meet repayments. This may result in large debts and a detrimental impact on the person and their family. The Families and Children Study 2004 suggests that around 20% of Scottish families have debts (excluding up to date mortgage payments but including such payments if they are in arrears). Of these, 10% were found to have one debt while 5% had two, 4% had three or four and 1% had five or more debts ¹⁷.

4.5 Whilst the SHS provides basic information on the characteristics of those households which make use of various forms of credit and sources of borrowing, conclusive explanations of patterns of use and non-use are not available. SHS data for 2005/06 on the use of credit (Table 4.1) suggests that:-

• 52% of respondents had credit cards in 2005/06;
• 16% and 18% respectively had a store card or used mail order schemes;
• A small proportion of those surveyed used hire purchase agreements, charge cards or shopping vouchers; and
• Around one third of respondents did not make use of any of the sources of credit listed in the Table, a seemingly large minority.

TABLE 4.1 Sources of Credit 2005/06
(Household Information)

Number of respondents: 27,069
Source: Scottish Household Survey Information

4.6 The key finding would seem to be that a high proportion of the population do not make ready use of these sources of credit. It is not, however, clear if this is as a result of personal choice or as a result of exclusion. There is a small group of people who use store cards and mail order schemes which, when goods are not paid for in full, are more expensive forms of credit. One major catalogue retailer provides a good example of this with the price of an item paid over 20 weeks being 29% higher than the same item if bought by cash. However, as data concerning repayment of such credit is not available, and the proportion of respondents who make use of these sources is relatively small, this is not considered to be a widespread issue.

4.7 Whilst just over half of households surveyed had access to credit cards in 2005/06, there was a high degree of variation by local authority area. Dundee City stood out as having the lowest proportion of people with credit cards (33%), while usage was also low in Glasgow City and West Dunbartonshire (40% and 41% respectively). At the other extreme, East Renfrewshire (71%) and East Dunbartonshire (67%) had the greatest proportion. Two key issues emerge from this analysis:-

• Glasgow, Dundee and West Dunbartonshire have high levels of deprivation, as measured by the 2006 SIMD; and
• East Renfrewshire and East Dunbartonshire have low levels of deprivation and high numbers of residents who commute into the higher paying occupations in Glasgow.

4.8 There was also a rural dimension to the results, with a greater proportion of households in remote rural (60%) and accessible rural areas (59%) having a credit card, whilst respondents from large urban areas were proportionately less likely to have one (48%). This finding may be a reflection of relative levels of deprivation or, alternatively, the convenience of credit card transactions which may be made online or over the phone in rural areas which lack the services and amenities of urban areas.

4.9 The suggestion that urban areas, in particular, have low levels of credit cards due to deprivation is borne out when assessing differences between the most deprived 15% of datazones and the rest of the population. In the 15% most deprived data zones, 27% of those surveyed had a credit card. In the other areas 57% of residents had a credit card. In addition, when looking at the proportion of people with a credit card in the continuum from the most to the least deprived areas in Scotland, there is a clear upward trend. Thus only a quarter of residents in the 10% most deprived datazones had a credit card compared to around three quarters in the least deprived 10% (Figure 4.1).

FIGURE 4.1 Percentage of respondents by SIMD Deciles using credit cards 2005/06
(Household Information)

Number of respondents: 27,045
Source: Scottish Household Survey Data

4.10 Analysis of the relationship between credit card possession and the socio-economic characteristics of households showed that:-

• A higher proportion of households in which the HIH was male (58%) than female (42%) possessed a credit card in 2005/06;
• A lower proportion of those aged 16-24 (34%) and 75+ (28%) had credit cards than those in the intermediate age brackets. Those in the 35-44 age group had the highest level of credit card ownership (62%);
• The highest level of credit card possession was found amongst married couples (65%) and lowest amongst those householders who had been widowed (29%). This may however reflect the average age of these respondents;
• Further analysis revealed that for all categories of household headed by a single person (see Paragraph 2.17), especially single parents (29%) and single pensioner (28%) households, credit card possession was below average, while the highest levels were recorded among small families (68%);
• Possession of a credit card was over 50% among respondents from all religious groups with the exception of Roman Catholics (45%) and those of Islamic faith (37%);
• Credit cards were very common among those who were in the process of buying their home with the help of a mortgage or loan (72%). Conversely, credit cards were least prevalent amongst respondents who were renting their homes from the local authority (17%), or a housing association (19%); and
• A similar pattern to that observed in relation to bank accounts was evident when use of credit was compared with health and physical ability. Use of credit cards was lower among those households where one or more members suffer from a long term illness or disability (35%, as compared to 60%).

4.11 Access to credit cards among respondents of differing economic status is shown in Table 4.2. From the Table, it is apparent that possession is highest among those households where the HIH is self employed and lowest for those who were unemployed and seeking work.

TABLE 4.2 Use of credit cards by economic status of HIH 2005/06
(Household Information)

Number of respondents: 27,068
Source: Scottish Household Survey Data
Note:
1. Respondents at school or in a government work or training scheme have been discounted due to the small sample size.

4.12 Although the above analysis illustrates the socio-economic characteristics of those who engage with mainstream credit providers, especially credit card providers who are the principal source of credit for the majority of respondents, it is also important to determine the characteristics of those who do not engage with the sector.

4.13 When looking at the results by geography in 2005/06 a contrasting pattern to that observed in the assessment of credit card possession emerged. Large urban areas contained the greatest proportion of respondents who had not accessed any of the listed forms of credit (38%). This compared to 25% of respondents from remote rural areas. There was also a clear deprived area dimension, with respondents in the 15% most deprived datazones being less likely to have accessed credit (54% compared with 31%).

4.14 The key findings from the 2005/06 SHS regarding the socio-economic status of households who make no use of credit include:-

• 61% of householders aged 75+ and 49% of those aged between 16-24 had not accessed any of the forms of credit considered;
• 57% of householders who had been widowed made no use of credit. Once again this may reflect the average age of these respondents as 51% of this group were aged 75+; and
• Those who were unemployed or permanently sick or disabled were least likely to make use of credit (Table 4.3).

TABLE 4.3 Economic status householders who make no use of credit 2005/06
(Household Information)

Number of respondents: 27,067
Source: Scottish Household Survey Data
Note:
1. Respondents in a government work or training scheme have been discounted due to the small sample size.

4.15 The results show that there are a number of factors determining the likelihood that a person will have a credit card or some other source of credit. As with bank accounts (considered in the previous Chapter), it is believed that income may be a key determinant, although age may also play an important role. When respondents were considered in terms of their annual income, use of credit cards appeared to have a positive correlation with income, while the reverse was true among those who made no use of any type of credit. This is illustrated by Figure 4.2.

FIGURE 4.2 Use of credit by income band 2005/06
(Household Information)

Number of respondents: 26040
Source: Scottish Household Survey Data

Sources of Borrowing

4.16 The ability to borrow is an important element of financial inclusion. Households often need small amounts of credit to be able to pay for unexpected expenses or bills over the course of the year. For those on low incomes this pressure may be exacerbated by peaks and troughs in their income and outgoings. For the majority, mainstream products offer a mechanism for dealing with these variations. However, there are still a number of people who cannot access mainstream forms of borrowing. Those who are excluded from using these products may turn to moneylenders or pawn brokers. They can charge high levels of interest on loans (up to 500% APR) and, in extreme cases, may use threats of violence and take benefit books or passports as loan security. Access to suitable sources of borrowing is therefore a key element in promoting financial inclusion.

4.17SHS data shows that the majority of respondents (73%) had not borrowed money from any of the sources considered in the previous 12 months (Table 4.4). Among those who had borrowed money in the past 12 months:-

• 12% of respondents used a bank overdraft, whilst 9% had taken out a fixed term loan from a bank, building society or credit union; and
• Only a small number of respondents had taken a loan from a finance company and very few households had taken out a loan from an illegal money lender or "tally" man. Given the sensitive nature of these issues it may be that figures underestimate the true scale of use.

This pattern appears to be replicated across the UK. For example, evidence from the Families and Children Study (Lyon et al, 2006)) showed that bank overdrafts were the most significant form of borrowing among both couples and lone parents.

TABLE 4.4 Sources of Borrowing Used Over Previous 12 Months 2005/06
(Household Information)

Number of respondents: 27,069
Source: Scottish Household Survey Data
Note: Mortgages are excluded from the sources of borrowing considered by the SHS.

4.18 We now turn to an assessment of the places and people who had and had not borrowed money in the past 12 months. While access to affordable mainstream credit and borrowing are viewed as indicators of, and contributors to financial inclusion, it is important to highlight that exclusion cannot necessarily be equated with the failure to borrow money. Given that the majority of respondents have not borrowed money in the past year it seems doubtful that even a minority of these are financially excluded, particularly given that many of the sources of borrowing may be considered as short term or targeted loans for a specific purpose or as a crisis measure. Failure to borrow is, therefore, more likely to reflect the personal circumstances and wishes for the majority of respondents.

4.19 Analysis suggested that there was no clear geographic pattern to borrowing, although when analysed according to the rural:urban classification small remote towns ¹⁸ stood out as having the greatest proportion of people (76%) who had not borrowed money in the preceding 12 months. This is slightly above the average of 73%. No statistical relationship between living in the 15% most deprived data zones and levels of borrowing was detected.

4.20 When assessed in terms of use of a bank overdraft, the most common form of borrowing in 2005/06, some general issues emerge. In the most deprived areas 8% of respondents used a bank overdraft. This is lower than in the rest of the country, where 13% made use of an overdraft. This is, no doubt, a reflection of those who live in the worst SIMD areas not having bank accounts or not being granted overdrafts and therefore being unable to use this form of credit, which in its turn may be a reflection of financial exclusion.

4.21 In many respects the lack of any clear geographical pattern on borrowing was replicated when borrowing was analysed in terms of socio-economic characteristics. However, it was possible to identify some significant findings:-

• 91% of those who were permanently retired had not borrowed any money in the preceding 12 months;
• 91% of those who had been widowed made no use of loans as did 86% of those who owned their home outright; and
• Borrowing was most prevalent among those buying their home with the help of a mortgage, where 39% had borrowed money in the 12 months preceding the survey.

A similar pattern was evident when looking specifically at those who were least likely to have had a bank overdraft over the past year. Once again those who were permanently retired, widowed or owned their property outright were least likely to have borrowed money through a bank overdraft.

4.22 These findings suggest that age may be a key factor in relation to borrowing (or more appropriately a lack of it), with those over retirement age being less likely to borrow than other groups. This, in turn, no doubt reflects the stage that this group is in its life cycle, already owning the type of things that people borrow to be able to buy. However, it should be noted that for the majority, borrowing does not appear to be a major issue, with only a small proportion of people accessing particular products.

4.23 In addition, there was a significant relationship between the propensity to borrow money from identified sources and household income, with the likelihood that households had borrowed money in the past 12 months increasing with annual net household income (Figure 4.3). This was not, however, a consistent trend, with those in the lowest and the highest income groups being, respectively, more and less likely to borrow than their income band would imply. Why this should be the case is not immediately apparent.

FIGURE 4.3 Prevalence of Borrowing in Previous 12 months by Net Annual Household Income 2005/06
(Household Information)

Number of respondents: 26,037
Source: Scottish Household Survey Data

4.24 Use of high cost lenders, such as finance companies and doorstep lenders, may provide an indication of exclusion from mainstream markets. As such, the characteristics of respondents who make use of these forms of credit will now be considered. Due to the small number of respondents making use of these sources and the potential sensitivity of the subject, which may result in underreporting, interpretation needs to be treated with caution. In addition, the use of DSS Fund Loans will also be considered as these provided a source of borrowing which may partially overcome financial exclusion for low income households.

Borrowing from Finance Companies such as Provident

4.25 Of the 27,069 respondents who answered questions concerning borrowing and credit in the 2005/06 SHS, 3% of households (894) stated that they had taken a loan from a company such as Provident in the preceding 12 months. Further analysis revealed that:-

• There was no statistically significant relationship between gender of the HIH and the likelihood of borrowing money from a finance company;
• There was a statistically significant relationship between borrowing and the age of the HIH. Use of companies is highest among householders aged 25-34 (6%). This decreases to 1% among those aged 60-74 and 0.2% for those aged 75+;
• Borrowing was proportionately more likely among householders who were permanently sick or disabled, unable to work owing to short-term injury or illness (6%) or looking after their home or family (8%);
• There was a relationship between marital status and uptake of high cost loans. Level of use was lowest among householders who had been widowed (0.6%). Householders who were separated were most likely to make use of such services (5%). This was reinforced when household composition was considered as loans were most prevalent among single parent households (8%) and lowest amongst single pensioners (0.5%);
• Borrowing from companies like Provident was low (1%) amongst householders who owned their property outright and highest among those who rented their home from a Housing Association or Housing Co-operative (5%). There was little variation in other categories; and
• Loans were more common among those resident in the 15% most deprived areas of the country (5% compared to 3%).

4.26 It would appear, once again, that income is a factor determining the use of finance companies, with use generally increasing as income rose (Figure 4.4). This was the case until the highest income bracket was reached. It is not immediately obvious why this should be the case, although one explanation may be that the responses to the question relate to both high and low cost finance companies, that is they cover the use of finance companies such as Provident and more mainstream financial providers offering such things as loans for car purchase.

FIGURE 4.4 Use of finance companies by net annual household income
(Household Information)

Number of responses: 26,038
Source: Scottish Household Survey Data

Borrowing from Unlicensed/ Illegal Doorstep Lenders

4.27 Until fairly recently little has been known about illegal money lenders and their activities. However, as part of policy to address poverty and promote financial inclusion, the UK government made a manifesto commitment to "tackle loan sharks". As a result the DTI commissioned research to establish the extent and impact of illegal lending in the UK and how best to address it. The DTI has also funded 2 pilot enforcement projects in Birmingham and Glasgow: both areas known to have a concentration of loan shark activity. Key objectives set for the pilot team were:-

• Achieving an understanding of the nature and scale of the loan shark problem;
• Reducing the incidence of illegal money lending;
• Addressing the climate of fear that works against reporting;
• Changing the perception that lenders can work with impunity; and
• Supporting victims in finding viable alternative sources of credit following the removal of an illegal money lender.

4.28 The Personal Finance Research Centre ( PFRC) (2007) report that illegal lenders tend to operate in the most deprived communities, often in urban conurbations, with borrowers being among the most severely financially and socially excluded individuals. Those who use illegal lenders are typically those who:-

• Have no access to legal forms of credit;
• Have reached the limit of, or defaulted on, a legal credit line; or
• Are unable to access credit from the high-cost home credit lenders, for a variety of reasons.

4.29 The socio-economic characteristics of those using illegal lenders are generally reported to be similar to those of home credit users in general in that most users are female, with families, and are aged 30-40. However, in the case of unlicensed borrowing, there appears to be a greater male bias and a greater tendency to disadvantage than is the case with home credit users. The PFRC also report that chaotic lifestyles and/or substance abuse may be significant factors associated with those who borrow from illegal lenders.

4.30 Evaluation of the DTI pilot projects undertaken by the PFRC found that:-

• The 2 units had identified 203 lenders, had opened 111 investigations and arrested 39 lenders;
• Lenders in England had been prosecuted for offences including kidnapping, blackmail, firearms and assault;
• In Scotland 2 cases had been brought to court resulting in convictions with a further 6 in the prosecution pipeline; and
• Nine cases, largely unlicensed lending at the benign end of the spectrum, have been dealt with by way of formal cautions or warning letters.

4.31 Given the significance of social and financial inclusion policies for those who currently have few options but to borrow from illegal lenders, it was considered important to look at the characteristics of these households. However, the small sample size makes it difficult to draw conclusions.

4.32 Use of unlicensed doorstep lenders among respondents to the SHS in 2005/06 was very low at 0.1%. This amounts to 31 households. In 55% of cases the HIH was female. However, no statistically significant relationship between gender and use of illegal lenders was detected from the sample. In addition:-

• The small sample size made it impossible to determine a significant relationship between use of illegal doorstep lenders and household composition and tenure, although such loans were found to be slightly more prevalent among single parents, small families and those who did not own their own home;
• 81% of those who had borrowed from an illegal lender were aged between 25-59;
• 41% of those who stated that they had borrowed from an unlicensed lender were earning £10,000-£15,000 although, once again, the very small number of respondents means that this result should be interpreted with caution; and
• No significant relationship could be detected when households were compared using the 6 fold rural: urban classification and the Scottish Index of Multiple Deprivation.

Borrowing from the DSS Social Fund

4.33 The DSS Social Fund is intended to act as a "safety net" for those on the lowest incomes by reducing the costs of financial exclusion for those who lack access to affordable credit and financial products such as insurance. The Fund may distribute:-

• Crisis Loans; small loans to meet expenses in the event of an emergency. In 2004 the average value of a crisis loan was £77; and
• Budgeting Loans; larger loans to meet one off expenses (such as household appliances, or advance rent payments). In order to receive a budgeting loan, applicants must be in receipt of income support, Job Seekers Allowance or pension credit. In 2004 the average value of a budgeting loan was £384.

4.34 Loans from the Social Fund are interest-free and are usually repaid by deductions from benefit payments. Loans are made from cash limited budgets according to local priorities. As a result there is no guarantee of being awarded a loan. Statistics from the Department of Work and Pensions for the period 1 April 2004 - 31 March 2005, show that more than one in 5 applications for budgeting and crisis loans were rejected ¹⁹. The National Consumer Council ( NCC) (2005) reports that 50% of loan refusals were subsequently overturned on appeal. This was felt to indicate that people with a genuine need were being turned away. In addition, the NCC reports that around one in 4 of those whose applications were refused, may then be forced to borrow from high cost lenders and unlicensed credit providers.

4.35 Amongst respondents to the 2005/06 SHS, 528 households had received a loan from the DSS Social Fund. Analysis of their socio-economic characteristics found that:-

• A higher proportion of households where the HIH is female received a loan (3% compared to 1%);
• There was a relationship between the age of the householder and the likelihood that they had received a loan from the Social Fund. Loans were most common among householders aged 16-24 (7%), declining to 0.02% among those aged 75+;
• Loans from the Fund were significantly more common amongst householders who were not in employment, single parent households and those did not own their own home;
• Social Fund loans were most common among respondents who were single or separated (5%) and least common among married couples (0.5%); and
• Loans from the Fund were most common in large urban areas (2.5%) and least common in remote rural locations (0.4%). This no doubt reflects income differentials and the overall levels of deprivation in these areas.

4.36 The above conclusion is supported when loans were considered in relation to the SIMD. Of SHS respondents living in the 15% most deprived data zones, 6% had received Social Fund loans, compared to only 1% in the rest of the country.

4.37 Use of the DSS Social Fund by income band is shown in Figure 4.4. It can be seen that loans were most common among those earning £6,001-£10,000. This decreased to 0.3% among those earning £20,001 or above. This is to be expected.

FIGURE 4.4 DSS Social Fund Loans by net annual household income 2005/06
(Household Information)

Number of respondents: 26,038
Source: Scottish Household Survey Data

Mortgages

4.38 There appears to be a generally consistent picture from the data on mortgages or loans on property, with just over a third of the population having a mortgage or loan on their property in 2005/06. This has declined slightly from 2001/02 when the proportion was 37% (Table 4.5).

TABLE 4.5 Whether Household has a Mortgage or Loan on Property
(Household Information)

Source: Scottish Household Survey Data

4.39 In 2005/06, 62% of those with a mortgage or loan had a repayment mortgage, just over one quarter had an endowment mortgage and the remainder stated that they had some other form of mortgage or loan (including combined endowment and repayment mortgage, a bank loan or a loan backed by another institution). This profile may be driven by the recent poor returns on endowment mortgages, as the balance was much more even in 2003/04 when endowments accounted for 40% of mortgages held, repayments for 51%. Alternatively, this may reflect confusion among respondents as to the kind of mortgage that they have. A further notable finding in the rapid increase in the proportion of respondents taking interest only mortgages between 2003/04 and 2005/06 (1% to 6%). This may be a response to the relative rise in house prices in comparison to incomes.

4.40 Overall 2005/06 data shows that:-

• 70% of householders who had a mortgage on a property that they own were aged between 35-59;
• In 92% of households which had a mortgage, the HIH was in employment, education or training;
• The majority of those with mortgages (63%) were married couples; and
• Among those who owned their property, no significant relationship was found between urban location or levels of deprivation and having a mortgage or loan on that property.

Insurance

4.41 This analysis looks at the prevalence of home contents insurance and the characteristics of those who do not possess this form of insurance cover. The main focus is on home contents insurance as this is an area where a lack of compulsion allows us to identify those who are not accessing this product. As buildings insurance is not an issue for those who rent (either privately or publicly), it is felt to be a weaker indicator of financial inclusion.

4.42 In 2005/06, 85% of respondents had home contents insurance, an increase of 4% from 1999/2000, (Table 4.6).

TABLE 4.6 Prevalence of Home Contents Insurance
(Household Information)

Source: Scottish Household Survey Data

4.43 The proportion of respondents who have home contents insurance appears to have increased steadily between 1999 and 2006. However, with between 15-20% of households failing to take out contents insurance, a substantial minority of households continue to be vulnerable to incurring high costs should they have to replace any damaged goods, or become victims of crime, flood or fire damage.

4.44 There would appear to be a particular geography of access to home contents insurance, that largely mirrors some of the earlier findings on access to finance and borrowing. In 2005/06 Glasgow City and Dundee City stood out as having the lowest proportion of people with home contents insurance, whilst East Dunbartonshire and East Renfrewshire had the highest proportions. There was a large differential between the areas with the highest and lowest prevalence of home contents insurance, ranging from 94% in East Dunbartonshire to 70% in Glasgow City.

4.45 These patterns were reinforced when home contents insurance was considered based on the 6 fold rural:urban split. In 2005/06 around 80% of those in large urban areas had home contents insurance compared to 91% in remote rural locations and 93% in accessible rural areas.

4.46 There were 2 further features of note in relation to deprived areas and home contents insurance (Figure 4.5):-

• The most recent data shows that a lower proportion (64%) of people in the most deprived 15% of areas had home contents insurance than in the rest of Scotland (89%); and
• The proportion of people with home contents insurance increased as the level of deprivation decreased. Thus 60% of those in the most deprived decile had home contents insurance as opposed to 96% in the 2 least deprived deciles.

4.47 It is believed that half of the poorest 20% of households in the UK are currently uninsured, compared to only one in 5 households on average incomes (Joseph Rowntree Foundation, 2005). These results show that levels of insurance in the most deprived parts of Scotland are significantly lower than in the rest of the country. Given that deprived areas tend to have the highest levels of crime, and this in turn drives the cost of insurance up, it may be that there is a cycle of decline in these areas with high risk meaning that the price of insurance is beyond the ability of many residents to pay. This then increases their vulnerability to damage or property theft, which in turn reinforces exclusion.

FIGURE 4.5 Home Contents Insurance by SIMD Decile 2005/06
(Household Information)

Number of respondents: 24,342
Source: Scottish Household Survey Data

4.48 There would appear to be a clear pattern in relation to deprivation and the take up of home contents insurance. This may partly explain the socio-economic characteristics of those who do not use this product. The socio-economic characteristics of those with home contents insurance were:-

• Home contents insurance was more prevalent in households where the HIH was male (86% as compared to 81%);
• Only 31% of unemployed respondents had home contents insurance. This compares with 94% of those who were self employed;
• 98% of those who were in the process of buying their home with the help of a mortgage had home contents insurance in 2005/06, as did 97% of those who owned their property outright. However, the prevalence of home contents insurance was much lower among those who rent their property with only 56% of those who rent from a local authority possessing this form of cover and 50% of those who rent from a Housing Association, Co-operative or private landlord;
• There was a relationship between marital status and home contents insurance with 72% of those who were separated and 66% of those who were single (and had never been married) stating that they possessed this cover. This compared to 94% of married couples and 88% of those who had been widowed. This finding may be a reflection of age;
• The likelihood of having home contents insurance increased steadily with age, from a low of 48% among those aged 16-24 to a high of 90% among those over 60; and
• There was a positive relationship between household income and the prevalence of home contents insurance (Figure 4.6).

FIGURE 4.6 Home Contents Insurance net annual household income 2005/06
(Household Information)

Number of respondents: 26,461
Source: Scottish Household Survey Data

4.49 These findings suggest that there are barriers to insurance among low income households. The review of literature found a number of major obstacles believed to deter the uptake of insurance services among low income households, namely:-

• Cost, with some people simply being unable to afford contents insurance. This problem is compounded for those living in areas of high social deprivation where premiums are higher. In such areas, provision of affordable insurance, which is commercially viable, may not be possible;
• Payment systems, as the majority of insurers require bank accounts from which to collect premiums in an efficient manner; and
• Understanding, in that those with low levels of financial education may find insurance services hard to understand and may be deterred by the documentation.

4.50 In addition, some may not appreciate the value of insurance cover if they have never had to make a claim and may therefore see little reason to have cover renewed, whilst others may judge that the cost of insurance cover outweighs the value of their belongings.

4.51 These factors imply that the situation is more complex than just cost, with these barriers relating closely to the definition of financial exclusion that highlights lack of access to products and services and having the knowledge and understanding to make informed choices.

Conclusions

4.52 This analysis of access to financial products has again found that there is 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,

4.53 The use of some products, for example mortgages, is clearly a reflection of housing tenure, which in turn is related to income. Use of various sources of credit and borrowing can be related to one's stage in the life cycle, as shown by the negative relationship between borrowing and age. The inability to use various sources of credit may also not always impose burdens on people. Given this, the policy implications of some of the findings in this Chapter may be limited. Where there may, however, be an area where intervention could be justified is house contents insurance. This seems to bear a close relationship to deprivation, and one assumes poverty. However, the consequences of not having insurance (as against, for example, not having a credit card) can be quite severe. As such action to increase uptake could be easily justified.

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