The Scottish Government

« Previous | Contents | Next »

Listen

Target K:

By 2008 increase the availability of appropriate financial services and money advice to disadvantaged communities to reduce their vulnerability to financial exclusion and multiple debts

SUMMARY EVALUATION

A4.241 Considerable investment has been made to increase and improve financial services and support to the most vulnerable. At this point, these service improvements have not yet had the opportunity to effect positive change to the lives of the most vulnerable in disadvantaged communities.

WORK PROGRAMME AND POLICY CONTEXT

A4.242 Target K was announced in December 2004. The Financial Inclusion Action Plan was published in January 2005. It provides a summary of existing work to promote financial inclusion and plans to 2008; a lead for partners with a role in increasing financial inclusion; and explanation of how the strategy in Scotland links with UK government approaches.

A4.243 The Financial Inclusion Action Plan identifies that sustaining and maintaining financial inclusion includes:

• Access to affordable credit, e.g., through Credit Unions
• Access for people in marginalised groups to a range of mainstream banking and savings products
• Everyone having home contents insurance, e.g. through developing pilots with social landlords to offer schemes to tenants
• Individuals and communities owning and building on assets

A4.244 There are three approaches considered necessary in the Plan: prevention of financial exclusion; routes out of financial inclusion; and sustaining and maintaining financial inclusion. These are addressed through the following activities:

• Support for Credit Unions (including £500,000 Credit Union Capacity Fund) and other basic financial services that offer people an opportunity to manage their financial circumstances in a safer, more structured and often less expensive manner.
• Money advice to help people manage their debt and other financial difficulties; and
• Financial education to help people avoid problems when managing money.

A4.245 Eleven local authorities were assessed as having the greatest concentration of financial exclusion in their areas, and funding through the Financial Inclusion Action Plan. North Ayrshire added to the original list of areas in July 2005 (Table A4.54).

Table A4.54: Financial Inclusion Action Plan Performance, Local Authorities

Note: The allocation for North Ayrshire was announced on July 1 ^st 2005 (after the other authorities).

Source: http://www.scotland.gov.uk/News/Releases/2005/06/06103036

A4.246 In 2001 the Credit Union action plan Unlocking the Potential was published. This plan contained a number of recommendations for future action and aimed to increase the proportion of the population that are members of a Credit Union in Scotland from one to five per cent. A number of funding initiatives were introduced to build capacity in the Credit Union movement.

A4.247 A key approach to the Scottish Executive's strategy on financial inclusion is to improve access to money advice. In 2002 a £3m per annum funding stream was announced to provide for additional money advisers across Scotland. That support was increased be an additional £2m per annum from 2005/06, bringing the spending on face to face money advice to £5 million per annum. The aim of the additional funds was to increase the front-line capacity within the money advice sector, as well as allowing advisers to become approved under the Debt Arrangement Scheme. The Executive estimates that the funding provides for 130 FTE money advisers, representing 50% of the free money advice sector in Scotland.

A4.248 The Executive is providing £1.4M over two years for financial inclusion activities, including the initiation of a financial education programme and the commissioning of projects to provide better evidence of which methods have the greatest impact. This work aims to inform future policy. The Executive also supports the provision of financial education in schools through the Scottish Centre for Financial Education.

A4.249 In order to try and prevent some of the situations that result in people finding themselves in financial difficulties, the Scottish Executive is working with a number of stakeholders to look at how it can help all people understand which financial products and services are most appropriate for their needs, and how to engage with them.

EVIDENCE

Financial Services

Credit Unions

A4.250 The Family Resources Survey indicates that two per cent of households had a Credit Union account in 2004-5, as did the 2003-4 Scottish Household Survey. In 2001 the number of members was estimated by the Financial Services Authority ( FSA) to be 119,595, described as less than 1% of the total population, and equivalent to 2% - 3% of the adult population. FSA statistics show that the number of adult Credit Union members in Scotland rose from 169,987 in 2003 to 179,366 in 2004. This represented 36 per cent of the UK Credit Union membership ³⁷. This is equivalent to an increase of approximately half over a four year period. However, the Scottish Executive review of outcomes (February 2006) showed that, at the end of September 2004, "4.32% of the adult population are members of a Credit Union".

A4.251 There is limited data available for social profiling of members. However, research undertaken in 2004 indicated that very few members were aged under 30 or from minority ethnic backgrounds, with most members being of White ethnic background, unemployed, sick or disabled. However, the research did suggest that one quarter of members lived in areas designated as being deprived and 14% were in receipt of means tested benefits. This research estimated that estimated that "between 12% and 20% of Credit Union members would lack access to financial products and services but for membership of a Credit Union" ³⁸.

A4.252 The indication from available data is that the broad target of 5% of the adult population having membership of a Credit Union may be achieved by 2008. However, it is important to consider the profile of membership, and it is not possible to ascertain how recent increases in membership have (or projected increases in membership will) altered the profile of Credit Union membership nor, more particularly, whether it has increased access to financial products among the financially vulnerable, or merely increased the participation in Credit Unions of less vulnerable groups who have been under-represented in Credit Unions.

A4.253 Data from the SHS indicates that the highest proportions of households with a Credit Union account in 2003-04 were in West Dunbartonshire (10.4%), Inverclyde (5.3%), East Dunbartonshire (4.7%) and Glasgow (4.5%). All except East Dunbartonshire are included among the 10 local authorities assessed as having the greatest concentration of financial exclusion.

Other Financial Products

A4.254 Overall, four per cent of households in Scotland did not have a bank account in 2004-05 ( Family Resources Survey). Using FRS, which includes Credit Union and post office accounts) the proportion of low income households with no bank or building society account is shown to have fallen rapidly. More than 30 per cent of the poorest fifth of households had no such account in 1994-95 compared to only 10 per cent in 2004-05 ³⁹.

A4.255 Similar trends are identified in the SHS (which excludes Credit Union and post office accounts). It compares the situation of quintile groups to show the percentage of households in which neither the highest income householder nor their partner has a bank or building society account. Between 1999 and 2003, the proportion with no bank or building society account reduced from 29% in 1999 to 21 per cent in 2003 in the most deprived quintile and from 14% to 8% in the second most deprived quintile.

A4.256 Respondents in the SHS who lived in the 15% most deprived areas were much more likely than others to say that they had no savings or investments (27% compared with 58%). They were also much less likely to have home contents insurance than the rest of Scotland (40% compared with 13%)

Money Advice

A4.257 £1 million of the funding over 2003-05 was used to provide training and support the Money Advice, Training, Resources, Information and Consultancy Services partnership ( MATRICS) to improve the quantity and quality of money advice across the sector. The Scottish Executive had hoped to meet the target of 100 trained DAS approved money advisers by April 2005. However, in a speech at a financial inclusion conference on 26 ^th June 2006, the Depute Minister for Communities, Johann Lamont said:

"With regards to DAS, we now have 60 money advisers qualified to administer the Debt Arrangement Scheme. We recognise that the number of advisers coming forward for DAS approval has not been as high as we would have wished, we have listened to the views of the sector and, where possible, will be taking these forward." ⁴⁰

A4.258 The initial aim of increasing advice provision has been achieved through funding, and some progress has been made towards the aim of having 100 DAS approved money advisers. At the time of writing this report, the list of DAS approved advisers shows 88 entries that include four repeats of individual who are registered either for more than one organisation or the same organisation at different addresses. This indicates that there are 84 individuals registered, still short of the target of 100. It should also be noted that, although there is at least one DAS approved adviser in most local authorities, four had none in the area: East Lothian, Mid Lothian, Perth and Kinross and Shetland. The areas with the highest numbers of DAS approved advisers are Fife and South Lanarkshire (both nine) and North Ayrshire (six) and several areas, including Glasgow and Edinburgh have five.

A4.259 The Debt Arrangements Scheme has limited relevance for the most disadvantaged groups. Rights and advice workers are expressing disappointment that DAS is not helping many people on low incomes. Unless people have some available income or assets to arrange debt repayments, the current scheme has no relevance for them ⁴¹

Money Advice for Vulnerable Groups

A4.260 It was recognised that the advice needs of vulnerable groups may not be met effectively through mainstream advice services. The Financial Inclusion Action Plan identified the need for mainstream services to improve the ways in which they meet the needs of people from marginalised and vulnerable groups and communities. Funding of £2 million for 13 projects throughout Scotland for 2004-6 aimed to develop new delivery approaches for money advice to be provided to vulnerable groups such as lone parents, people with mental health problems or learning disabilities, ethnic minority communities, long-term unemployed people, young people, and ex-offenders. The key aim of the projects was to learn lessons for mainstream services. The evaluation of the projects showed that money advice and other forms of support, such as workshops and one-to-one counselling, had a positive impact on the confidence of interviewees in managing their financial affairs and understanding the cost of borrowing. Income maximisation work was also very important ⁴².

A4.261 The impact of the resources put into money advice cannot be quantified at present. A framework for monitoring services funded by the Executive has been put in place recently. The data gathered is analysed in the 2007 report, which will provide baseline information for future comparison. Importantly, these data should shed some light on the profiles and situations of individuals who are accessing these money advice services. Progress in reaching disadvantaged groups may be tracked over time, particularly as monitoring data improves.

Number of Advisers in Post

A4.262 It can be concluded that funding has been provided and there are money advisers in post, thus increasing the availability of money advice. These are output targets rather than outcomes. The Scottish Executive is also working with UK partners to develop the means of evaluating the impact of money advice; this aspect of the Target K should be seen as a 'work in progress'

Financial Literacy and Financial Education

A4.263 Previous Scottish Executive policies on tackling financial exclusion focused predominantly on support for Credit Unions and money advice services - which address issues of over-indebtedness and the lack of mainstream financial services provision. The Scottish Executive is now also taking a more pro-active approach, involving education, to tackling financial exclusion. The downstream benefits of which may relieve demand on advice services.

A4.264 Since 2004, the Financial Services Authority has taken the lead in developing financial education through its Financial Capability Strategy. Although the Scottish Executive works within the FSA's framework, any issues specific to Scotland are acknowledged and there is a focus of addressing gaps in provision for vulnerable and marginalised groups.

DATA ISSUES

A4.265 There is a lack of consistent data on holding a bank account. Since 2003, the SHS has included Credit Union accounts which were not included in earlier surveys. The Family Resources Survey includes such accounts. The trends are similar, but data are not entirely consistent. The lack of equalities data means trends in relation to equalities groups cannot be clarified.

A4.266 The relevance of bank accounts as a measure of exclusion may be diminishing. On one hand, payment of benefits through bank accounts has contributed to significant shifts in access to such accounts among low income groups. However, there is underlying problems of a more fundamental nature. Evidence suggests that people with learning disabilities experience problems with accessing and using appropriate banking services and products and are "generally treated less favourably than others at the outset" ⁴³. Evidence from the 2007 Scottish Executive evaluation of money advice pilot projects for vulnerable groups suggests that having a bank account has created difficulties, including incurring charges on accounts and loss of benefits to the bank as a creditor, that suggest that holding a bank account may not always be an indicator of inclusion. These difficulties arose most for people with learning disabilities or mental health problems, and the solution for some was to return to working entirely with cash. Having a bank account is not necessarily a measure of inclusion for vulnerable groups of people.

A4.267 For the future, the emphasis in evaluation may need to move beyond access to products. In addition to the bank charges issues, individuals may exclude themselves from products or services in a manner that can conceal their exclusion, e.g. self disconnection from electricity, because an individual cannot or does not top up a power card is a measure of fuel poverty. In theory, they can access the product, but they 'choose' not to. Consideration may need to be given to devising measures that expose potential unintended negative effects such as bank charges and self disconnection. Data in relation to equalities groups, particularly people with mental health problems or learning disabilities and the costs incurred of accessing mainstream products may be more informative for understanding financial inclusion or exclusion among more disadvantaged groups.

« Previous | Contents | Next »