Banking for All

1. Context
2. The study
3. Key findings
4. Points to consider

Context

Financial exclusion in the UK affects around 1.5 million adults who do not have a bank account and are unable to access affordable credit, owing to their credit history. Many adults lack practical money management skills and financial knowledge, limiting their ability to budget or save effectively. These groups are vulnerable to increased costs, such as additional costs associated with energy bills, and typically face higher borrowing costs. These groups are also more likely to be missing out on online deals and cost efficiencies such as direct debit payments.

In its March 2015 report, the independent Financial Inclusion Commission set out its vision for 2020, in which every adult has their own bank account and access to appropriate affordable credit from responsible lenders, is encouraged and enabled to save, can access reasonable insurance cover and advice on credit, debt, savings and pensions. The vision also aspires for every adult and child to receive financial education at key life stages. The Commission aspires for the vision to be delivered by the Government, regulators, financial services industry and third sector working together before the general election in 2020, under the leadership of a Minister for Financial Health.

The study

Demos wrote the report, which was supported by Lloyds Banking Group. Demos convened four expert round­table discussions, bringing together stakeholders including politicians, civil servants and representatives from commercial banking, credit unions, housing associations and charitable organisations including financial education providers, debt advice charities, and food banks. The groups discussed potential ways to tackle financial exclusion and address key barriers to accessing financial services identified by the Financial Conduct Authority (FCA). Barriers include the transition to digital services, and working effectively with the third sector to help hard-to-reach and deprived groups. The report also considers the broader themes of financial education and capability, and the role of alternative financial services providers such as credit unions.

Key findings

The report set out a series of recommendations, designed to support collaboration between the Government, the private and the third sectors to tackle financial exclusion more effectively, particularly through early interventions:

• Some emerging policy changes present opportunities for improved financial inclusion, such as the Lifetime ISA and Help to Save scheme which are designed to help households build up a savings buffer, reducing demand for high-cost short-term borrowing. However, other developments present challenges, such as changes to benefit entitlements, which could exacerbate households’ financial difficulties.
• The third sector plays a key role in supporting financially excluded harder-to-reach people, providing an impartial sources of advice. However, regulations are hamper­ing this support, both directly and indirectly, owing to insufficient information and communication. The report advocates improving joint working both within the third sector and between charities and banks. 
• Credit unions can offer services to people that may not be able to access the commercial banking sector, and might otherwise be vulnerable to taking out high-cost, short-term loans. Credit unions can play an important role in promoting savings behaviour to tackle financial exclusion. However, credit unions continue to experience challenges in awareness raising, capacity building and ensuring their long-term sustainability.
• Evidence concerning the effectiveness of financial education in schools is limited, although charities, credit unions and others do deliver interventions that are proven to work. For example, interventions focusing on practical skills development at key ‘life points’, such as early years, young adulthood and new parenthood, are particularly effective. However, there remains a strong taboo around discussing money, which hampers efforts to improve financial capability. Financial capability levels remain very low amongst young adults in particular.
• New technology can enable people to take better control of their finances, improve their financial capability, and access more financial services. However, some sections of the population are at risk of being left behind as a result of low digital and financial capability. Online peer support is a potential tool in promoting financial capability.

Points to consider

Methodological considerations

• The report does not specify how many stakeholders participated in the roundtables and how they were selected.

Relevance:  

• Representatives from a number of organisations involved in the delivery of financial education and capability to all age groups in the UK were involved in the roundtable discussions. The findings therefore have broad relevance and should be of interest to a wide audience.

Full report

Demos Banking for all full report