The Facts

Introduction

Financial inclusion means belonging to a modern mainstream financial system that is fit-for-purpose for everyone, regardless of their income. It is essential for anyone wanting to participate fairly and fully in everyday life. Without access to appropriate mainstream financial services, people pay more for goods and services and have less choice. The impacts of exclusion are not just financial but also affect education, employment, health, housing, and overall well-being.

A woman with unpaid bills has many debts

Who is financially excluded?

While financial exclusion affects a wide range of people at different times in their lives, it mainly impacts people with low or unstable incomes, or who have experienced a significant life shock. Lone parents, single pensioners, migrants, long-term sick or disabled people, the long-term unemployed, and households headed by students or part-time workers are some of the groups most commonly excluded from financial services.

A woman travelling by train

The facts

Banking

  • Internationally, the UK is ranked ninth in the world in terms of banking inclusion by the World Bank 1
  • 1.5 million adults remain unbanked in Britain today. 2
  • Only about half of the unbanked would like a bank account. 3
  • Some 50% of the newly banked have incurred penalty fees, with those affected averaging 5.6 charges per year. 4 26% of the newly banked are ‘net losers’, incurring more penalty charges than they have gained in savings. 5
  • Around half of people with a basic bank account choose to manage their money in cash. 6
  • 60-67% of the unbanked 7 and 40-60% of the newly banked 8 have previously had an account. Around 15% of newly opened accounts are closed or abandoned. 9
  • Customer satisfaction levels are below 60% for the four largest providers. 10
  • Between 1989 and 2012, more than 40% of all bank and building society branches have closed – a net loss of 7,500 branches. Low income areas have disproportionately borne the brunt of these closures. 11

Credit

  • An estimated two million people took out a high-cost loan in 2012 as they were unable to access any other form of credit. 12
  • The level of unsecured consumer credit has tripled in the past 20 years, from £51.8 billion in 1993 to £160.4 billion in 2014. 13
  • It is estimated that 49-64% of households in the UK hold some form of unsecured credit 14.
  • It is estimated that between three million 15 to seven million 16 households use high-cost credit.
  • The payday lending market has grown from £330 million in 2006 to £3.7 billion in 2012. 17
  • The pawnbroking market has grown from £296 million in 2007 to £821 million in 2012. 18
  • The number of illegal moneylenders is estimated to have risen from 165,000 in 2006 to 310,000 in 2010. 19

Savings

  • There are 13 million people in the UK who do not have enough savings to support them for one month if they experienced a 25% cut in income. 20
  • Only 41% of British households are saving 21.
  • The UK saves less than almost any other country in the EU. 22

Insurance

  • Half of households in the bottom half of the income distribution lack home contents insurance, compared with one in five households on average incomes. 23
  • Households with no home contents insurance were more than three times as likely to be burgled than those with insurance. 24

Context

  • 61% of the UK population owns a smartphone. 25
  • 77% of adults have access to broadband, either fixed or on their mobile. 26
  • On average, real wages fell by 9% between 2008 and 2013. 27
  • Between 2007 and 2013, electricity, gas, and fuel costs rose by 61%. Over the same period, food prices increased by 31%, and transport costs by 25%. 28
  • It is estimated that 2.5 million people will need budgeting support to transition onto Universal Credit’s monthly, direct payment. 29

Notes

  1. World Bank, 2012. Financial Inclusion Data: Global Findex Database. [Online]
    Available at: http://datatopics.worldbank.org/financialinclusion/ [Accessed 23 August 2014].
  2. Rowlingson, K. & McKay, S., 2014. Financial Inclusion: Annual monitoring report 2014, Birmingham: University of Birmingham.
  3. Financial Inclusion Taskforce, 2010. Banking Services and Poorer Households, London: Financial Inclusion Taskforce.
  4. Ellison, A., Whyley, C. & Forster, R., 2010. Realising Banking Inclusion: The achievements and challenges, London: HM Treasury.
  5. Ibid.
  6. Social Finance, 2011. A New Approach to Banking: Extending the use of Jam Jar Accounts in the UK, London: Social Finance.
  7. Financial Inclusion Taskforce, 2010. Banking Services and Poorer Households, London: Financial Inclusion Taskforce; Ellison, A., Whyley, C. & Forster, R., 2010. Realising Banking Inclusion: The achievements and challenges, London: HM Treasury.
  8. Ibid; Kempson, E. & Collard, S., 2012. Developing a Vision for Financial Inclusion, Dorking: Friends Provident Foundation.
  9. Ellison, A., Whyley, C. & Forster, R., 2010. Realising Banking Inclusion: The achievements and challenges, London: HM Treasury; Financial Inclusion Taskforce, 2010. Banking Services and Poorer Households, London: Financial Inclusion Taskforce.
  10. Competition and Markets Authority, 2014. Personal Current Accounts: Market study updates, London: Competition and Markets Authority.
  11. French, S., Leshon, A. & Meek, S., 2013. The Changing Geography of British Bank and Building Society Branch Networks 2003-12, Nottingham: University of Nottingham.
  12. Centre for Social Justice, 2014. Restoring the Balance: Tackling problem debt, London: Centre for Social Justice.
  13. Bank of England, 2014. LPQBI2O: Quarterly amounts of outstanding of ttal (excluding the Student Loans Company) sterling net unsecured lending to individuals (in sterling millions) seasonally adjusted, London: Bank of England.
  14. Wealth and Assets Survey in Rowlingson, K. & McKay, S., 2014. Financial Inclusion: Annual monitoring report 2014, Birmingham: University of Birmingham.; YouGov poll in BIS, 2010. Over-indebtedness in Britain: second follow-up report, London: Department for Business, Innovation and Skills; NMG survey in Bank of England, 2013. The Financial Position of British Households: Evidence from the 2013 NMG Consulting survey, London: Bank of England.
  15. Financial Inclusion Taskforce, 2010. Mainstreaming Financial Inclusion: Planning for the future and coping with financial pressure - access to affordable credit, London: Financial Inclusion Taskforce.
  16. Purtill, C., Cray, J. & Mitchell, C., 2011. DWP Credit Union Expansion Project: Feasibility Study Report, London: Department for Work and Pensions.
  17. Beddows, S. & McAteer, M., 2014. Payday Lending: Fixing a broken market, London: Association of Chartered Certified Accountants.
  18. Reed, J., 2012. The Return of Pawnbroking. BBC News, 20 December, http://www.bbc.co.uk/news/20791776.
  19. Policis, 2006. Illegal Lending in the UK, London: Department of Trade and Industry; Policis, 2010. Interim Evaluation of the National Illegal Money Lending Projects, London: Department for Business, Innovation and Skills.
  20. StepChange, 2014. Life on the Edge, London: StepChange.
  21. Family Resources Survey data in Rowlingson, K. & McKay, S., 2014. Financial Inclusion: Annual monitoring report 2014, Birmingham: University of Birmingham.
  22. OECD, 2012. Factbook 2011-12, London: Organisation for Economic Co-operation and Development.
  23. Rowlingson, K. & McKay, S., 2014. Financial Inclusion: Annual monitoring report 2014, Birmingham: University of Birmingham.
  24. Ibid.
  25. http://media.ofcom.org.uk/facts/
  26. http://media.ofcom.org.uk/facts/
  27. Gregg, P., Machin, S. & Fernandez-Salgado, M., 2014. Real Wages and Unemployment in the Big Squeeze. The Economic Journal, 124(May), pp. 408-432.
  28. Resolution Foundation, 2014. The State of Living Standards, London: Resolution Foundation.
  29. http://www.publications.parliament.uk/pa/cm201213/cmselect/cmworpen/576/57606.htm#n138