« Previous | Contents | Next »
Listen
Chapter Seven Conclusions and Recommendations
7.1 This research has demonstrated that the term financial inclusion may be applied differently to different groups of people at different stages in their lives. However, there does appear to be a clear link between financial exclusion and poverty, with exclusion acting as both a symptom and a contributing factor to the latter. While there is no single nor straightforward cause of financial exclusion it would appear that barriers such as access, expense, conditions and perceptions inhibit the use of mainstream financial products and services by excluded groups.
7.2 Exclusion from mainstream financial systems presents a barrier to learning, understanding and utilising various financial products, including mortgages, insurance and credit. Without the necessary skills and financial capability, households can be locked in a cycle of poverty and exclusion or suffer as a result of inappropriate product choice, high cost credit or, for some, illegal money lending.
7.3 The Financial Inclusion Taskforce was established in 2005 to monitor the progress against the objectives the Government set towards promoting financial inclusion across the UK. The Taskforce has welcomed the steady uptake in bank accounts but it realises that more could be done, both by Government, intermediaries, industry and consumers alike. This is particularly the case for those on low incomes.
7.4 Analysis of the SHS revealed a small but steady increase in 3 key indicators of financial inclusion; bank accounts, home contents insurance and perceptions of financial management. However it would appear that there has been a small decrease in the proportion of respondents who are actively trying, or succeeding, to accumulate savings or investments.
7.5 Analysis revealed a strong relationship between financial inclusion and indicators of poverty. The extent of financial inclusion appeared to be consistently below average among those households in which the highest income householder was:-
- Aged 75 or more;
- A single parent;
- Widowed;
- Unemployed and seeking employment;
- Suffering from a disability or long term illness;
- Renting their home; and/or
- Earning a low income.
7.6 Policy initiatives, such as the POCA, which is due to be withdrawn in 2010, seem to have been instrumental in giving those who are most likely to be financially excluded access to basic banking facilities.
7.7 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
7.8 In the majority of cases, access to financial products and services was below average among households located in the 15% most deprived areas, as defined by the SIMD. However, in contrast to existing research on financial inclusion, the rural dimension appeared to be much less significant than anticipated, with rural areas consistently scoring higher on key indicators of inclusion than other locations. It is thought that technological advances, such as the increasing of the internet, may provide a partial explanation as may in-migration.
7.9 The geographic dimension of financial inclusion was clearly evident when examining local authority level data. Local authorities were ranked in order of their performance on 4 key indicators of financial inclusion:-
- Prevalence of bank accounts;
- Prevalence of savings;
- Prevalence of home contents insurance; and
- Perception that the household manages very well financially (this was selected as an indicator of financial capability)
As illustrated by the benchmarking template, local authorities in rural locations appeared at the top of the table, with Aberdeenshire, Shetland, Moray and Argyll and Bute, all scoring in the top 5. Conversely, the 5 local authorities at the bottom of the table were Dundee City, West Dunbartonshire, Inverclyde, North Lanarkshire and Glasgow City, all of which have large urban populations and significant levels of deprivation. However, detailed analysis showed that there were imperfect correlations between the indicators and between them and the SIMD. The conclusion was that any policy initiatives to combat financial exclusion need both to focus on particular aspects of exclusion and cannot simply target authorities with the highest levels of deprivation.
7.10 While it is possible to determine the extent of inclusion at a local authority level, it is important to note that the SHS fails to detect variations within authorities. For example, Renfrewshire ranked mid table on the benchmarking template yet it seems highly likely that problems of financial exclusion may be more acute in areas such as Ferguslie Park, which was found to be the most deprived area in the 2006 SIMD.
7.11 The evidence-base for policymaking on the issue of financial exclusion has, to date, been largely influenced by quantitative research, with the principal method being statistical analysis of large-scale surveys.
7.12 However, owing to the complexity of the issues surrounding financial inclusion and the inability of large scale surveys to highlight neighbourhood level variations, qualitative research is now considered important in understanding the reasons why consumers engage, or not, with the financial services industry.
Future Research
7.13 Given the link between financial inclusion and poverty, it is thought that further analysis of data from the 15% most deprived data zones would be beneficial. This would help to ascertain the nature of the linkages between poverty, debt and persistent financial exclusion.
7.14 Financial exclusion has been exacerbated by structural features in the financial services industry and to a lesser degree by changes in Government policy, such as direct payments of benefits into accounts and the future withdrawal of the POCA. There are a significant number of POCA holders who do not have access to any other account and therefore rely on POCA as their only access to financial services. The Executive should, in the time remaining before the POCA is phased out, further analyse data provided by the SHS, in conjunction with data provided by the Department of Work and Pensions, on those who receive benefit payments into POCA. This could help to identify specific characteristics of POCA usage and any geographical variations to assist in the development of future policy.
7.15 The growth of internet banking, and banking by mobile phone, is a further area which is considered worthy of more detailed analysis. As young people tend to have lower financial capability skills than older generations, internet and mobile banking could become a channel for them to access information and advice as well as banking services.
7.16 The study showed age to be an important factor in various aspects of financial inclusion. As Scotland's population is currently ageing, there is also a need to consider the financial requirements of older people. Further work to analyse uptake of products and services amongst older people may therefore be appropriate. Accordingly it might be important to consider:-
- Ensuring that older people can access services in preferred/traditional ways;
- Educating older people about other payment methods;
- Making older people aware of credit options that are available; and
- Looking at addressing/overcoming concerns about new technology.
7.17 Asset based polices, promoting savings through, for example matched savings schemes offers the opportunity to address poverty by stopping people from falling into poverty and debt when circumstances change. Further work is therefore required to understand the obstacles to saving.
The Role of the SHS in Understanding Financial Inclusion
7.18 At present, the questions concerning access to, and use of, financial products and services, financial management and the accumulation of savings are asked of the household as opposed to the individual. As such, questions seek the response of the householder or their partner. This made it difficult to arrive at conclusions about the characteristics of those who may be considered financially excluded. As all analysis relating to socio-economic characteristics necessarily relates to the highest income householder, it was felt that other members of the household, such as grown up children or older relatives may be excluded from the sample. This may be an important oversight as analysis revealed that those at the extremes of the age spectrum are more likely to suffer from financial exclusion.
7.19 In order to gain more detailed information from the SHS it may be useful, as in the Family Resources Survey, to determine the type of financial accounts that are available to households. For example, if a householder states that they have access to a bank account it may also be useful to establish if the account is a basic bank account or an account with greater functionality.
7.20 The wealth of products and services currently available to consumers means that it is increasingly important that people have the right information, advice and education to make informed choices. Available evidence suggests that consumers do not, at present, shop around for financial products. Further attention within the SHS should therefore be given to understanding the financial capability of all incomes groups and in particular low income households and the way in which they make choices over financial products.
7.21 Increasing credit union membership has been a feature of Executive policy for some time, and it is believed that such third sector lenders may offer an effective solution to the problems of financial exclusion in some instances. However, analysis of the SHS revealed considerable polarisation in the characteristics of the households which held an account with a credit union, with many households making use of a wide range of products and services in addition to those provided by the union. It is felt that this may reflect the employee based structure of many Scottish credit unions and the fact that they may not be accessible to those who may benefit the most.
7.22 At present the SHS simply asks if the householder or their partner holds an account with a credit union. Extending this question to determine the type of credit union to which the respondent belongs could provide information on the extent to which credit unions are meeting the needs of excluded groups.
7.23 Existing research suggests that financial exclusion is associated with the use of high cost lenders, such as Provident. However, analysis of the SHS indicated that, in many instances, the use of finance companies was more prevalent amongst middle income earners. It is possible that the form of the question may have affected this result by picking up those households that had loans from mainstream finance companies as well as high cost lenders. As a result it is suggested that respondents be asked to specify the type of company from which they have received a loan.
7.24 Given the importance of financial capability to contemporary definitions of financial inclusion, it may be useful for the SHS to contain data on the uptake of financial advice. Maintaining the existing structure of questioning, the survey could ask if the householder or their partner have received financial advice concerning such things as saving, debt or budgeting in the preceding 12 months. If the respondent were to state that they have received such advice it would be useful to determine the source of that advice. If the respondent were to state that they have not received any financial advice a secondary question may ask the reason for this: for example, advice was not required or the respondent did not know where to seek such advice.
7.25 Information on financial capability could be enhanced by the inclusion of a question concerning household or personal debt. Such questions are included in the national Families and Children Study. It would seem useful if the same methodology as used by the Study could be used in the SHS.
7.26 Analysis of the 2005/06 SHS highlights the importance of the POCA in providing financial services to those who may find it difficult to access mainstream provision. This includes those who are:-
- Unemployed and seeking work; and
- Suffering from a disability or long term illness.
However, the 2003/04 SHS annual report, the most recent complete report, does not include any information on use of the POCA. Given the role of the post office in promoting financial inclusion and the forthcoming withdrawal of the POCA, it seems important, for the development of future policy, to collate evidence on the characteristics and location of users.
« Previous | Contents | Next »