The costs of financial exclusion
16. Many witnesses noted that financial exclusion
can impose significant costs on individuals, families and society
as a whole. These include:
- Denial of access to services
or a requirement to pay higher charges for services: the Fuel
Poverty Advisory Group indicated that not paying by direct debit
increases the cost of energy bills by around £70 per year.[32]
Other services such as mobile phone contracts may not be available
to the financially excluded.[33]
- Barriers to employment and enterprise: Many employers
require wages to be paid into a bank account. This can leave people
at risk of exploitation in the informal economy if they do not
have a bank account. Lack of access to financial services can
make it difficult for people to start their own business. Excessive
debt can act as a disincentive to work.
- Opportunities to save can be insecure or difficult
to access, and lack of security in storing money can leave individuals
vulnerable to loss or theft.[34]
- Opportunities to borrow can be limited (or illegal).[35]
- Difficulty in building assets: Owning or obtaining
assets can be difficult without access to finance. People may
be reluctant to save because of lack of access to advice and low-cost
products.[36]
- Difficulty in smoothing income to cope with shocks:
If households cannot access credit they may find it difficult
to deal with large one-off items of expenditure. Help the Aged
noted that many of the poorest pensioners can struggle to make
ends meet when facing one-off costs or unexpected bills.[37]
Lack of insurance can result in high costs if a person is a victim
of crime.
- Contribution to child poverty: The Government's
review of child poverty in 2004 highlighted the links between
financial exclusion and child poverty.[38]
Paying more for certain financial services and the impact of debt
can exacerbate the harm caused by child poverty. There are at
least 800,000 children in households without bank accounts.
- Entrenching social exclusion: Financial exclusion
contributes to social exclusion; individuals and neighbourhoods
which are financially excluded can become disengaged from mainstream
society.
Benefits of financial inclusion
17. While financial inclusion alone cannot prevent
poverty, it can help ameliorate some of its worst effects and
help provide routes into work and enterprise. Ms Claire Whyley,
Director of Policy at the National Consumer Council (NCC), noted
that "at a basic level, financial inclusion can reduce the
costs of poverty for people on low-incomes".[39]
The NCC believed that
unless being financially included makes a positive
difference to the lives of those who are excluded, it will not
be inclusion in any meaningful sense
Meaningful financial
inclusion can only be achieved if financial products and services
are designed and delivered to meet the particular needs of people
on the lowest incomes, ensuring that they are not only accessible,
but also attractive, appropriate and available.[40]
18. Financial inclusion can help towards the achievement
of the Government's objective to increase the rates of asset-ownership
amongst lower-income households.[41]
Promoting financial inclusion can also help in the regeneration
of local areas if money saved by increased access to financial
services can be re-invested in the community.[42]
19. Poor people end up paying proportionally more
for their money. Promoting financial inclusion is crucial to the
fight against poverty. An effective Government strategy to combat
financial exclusion has a crucial role to play in enabling those
on low incomes and others who are financially excluded to take
their own steps away from poverty.
17 Ev 244, 282, 300, 398 Back
18
A Atkinson, "Migrants and Financial Services: A review
of the situation in the United Kingdom", University of
Bristol, March 2006, pp 16-17 Back
19
Ev 456, 364 Back
20
Q 719; Ev 455; HM Treasury, Promoting financial inclusion,
chapter 2 Back
21
Ev 220 Back
22
Ev 353, 215, 202 Back
23
Ev 295 Back
24
Q 5 Back
25
"Banking benefits: CAB evidence on payment of benefits
into bank accounts", Citizens Advice, January 2006, pp
22-23 Back
26
D Knights, "Virtual financial services: who wants them?",
Keele University, 2000 Back
27
S Collard and E Kempson (2005), Affordable Credit: The way forward,
Bristol: The Policy Press Back
28
HM Treasury, Promoting Financial Inclusion, chapter 2 Back
29
Ev 500 Back
30
Pensions: Challenges and Choices: The First Report of the Pensions
Commission, October 2004, chapter 6 Back
31
Ev 447 Back
32
Ev 320 Back
33
HM Treasury, Promoting Financial Inclusion, Foreword Back
34
Ev 340 Back
35
HM Treasury, Promoting Financial Inclusion, Foreword Back
36
The Resolution Foundation, "Closing the gap: providing
financial advice to people on low incomes", May 2005 Back
37
Ev 334 Back
38
HM Treasury, Child Poverty Review, July 2004, p 45 Back
39
Q 4 Back
40
Ev 396 Back
41
Speech by John Hutton MP, Secretary of State for Work and Pensions,
to Fabian Society, 10 May 2006, Ending Child Poverty and Transforming
Life Chances Back
42
Ev 280 Back