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One in eight ‘financially excluded’

Leading researchers in banking and finance will highlight the ‘hidden crisis’ of financial exclusion in the UK during a public event today (Wednesday 28 March 2007).

According to the latest figures, one in eight people in the UK are termed as ‘financially excluded’, the term used to describe those who have no access to basic bank facilities. The most recent figures suggest that up to four million people in this country are unable or reluctant to access mainstream financial services.

During a special session at a think-tank in London today, University of St Andrews’ researcher Professor John Wilson called for urgent action to be taken into forcing banks to disclose crucial information which will help researchers better understand the situation.

Professor Wilson, together with Donal McKillop, Professor of Financial Services at Queen’s University, Belfast, addressed the Public Management and Policy Association think-tank on the subject of financial exclusion.

Professor Wilson said, “Financial exclusion now affects over four million people in the UK, over 8 per cent of the population. This, unfortunately, puts the UK some way behind the likes of France, Germany and Canada in per capita access to banking facilities. We cannot afford to be blasé about these figures and dismiss those outside our cosy world of internet banking, multiple credit cards and interest-free loans as work-shy or financially illiterate.

“Although much is currently being done to combat financial exclusion and improve access to basic financial services by central and local government, banks and credit unions and other community groups, a greater sense of urgency is still needed. Four million people in this country literally cannot afford to be left behind,” he said.

The consequences of financial exclusion are well known. Without some form of credit history opening a bank account can be difficult, and without a bank account getting a job can be a major problem.

“The resultant low household income forces many into the arms of loan sharks and other predatory lenders who charge ludicrous levels of interest, trapping the borrower in a cycle of dependency. Breaking this vicious circle can be a Herculean task for many,” noted Professor Wilson. Professor Wilson’s research involves not only finding effective solutions to financial exclusion but defining what ‘access’ to financial services actually means. He is interested in issues such as the impact online services and the closure of banks in deprived areas have on such access. Other ‘access’ indicators include the percentage of households without home insurance or of those in mortgage arrears.

However current legislation does not allow the enforcement of banks to disclose the necessary information about their lending habits and customer base. Unlike banks in the US, who regularly provide statistics on issues such as who their customers are (eg in terms of race, age, post code) and how accessible their services are, banks in this country are under no obligation, without Government intervention, to do so. Yet research suggests that 68% of the UK’s financially excluded live in the 10% of the country’s most financially deprived postcode areas – 25% live in the worst 3%. These are concentrated in areas of east and southeast London, Middlesbrough, Manchester, Bradford, Birmingham, Glasgow and Liverpool.

Professor Wilson continued, “Financial exclusion is a problem for all of us. It is inextricably linked with poverty, poor health and education, unemployment, family breakdown, exploitation from illegal and predatory lenders, exposure to crime and community breakdown. Society as a whole picks up the pieces of these problems and we need to find a way of educating people financially.”

The researcher suggests that policy measures need to be monitored closely and linked with initiatives such as financial advice and debt service repayment schemes. More general advice on education, housing and welfare matters will lead to improved protection of vulnerable consumers and allow them to become more financially capable, he said.

The researcher has also looked closely at the role of credit unions and, while they have played a role in tackling financial exclusion, he believes that they would be a more viable third party lending option if they consolidated into better, bigger and safer operations.

“Ultimately, more research is required to understand the dynamics of financial exclusion, and what links it with age, poverty, education, unemployment, health, ethnicity, religion, family cohesiveness, trust and geographic area. The reality is we need to use a number of indicators, and more, in our attempt to understand the extent, cause and consequence of financial exclusion. The more data we can get, the clearer our understanding of the problem will be,” he said.

“Future policy efforts need to be designed to tackle areas where financial exclusion is not only a transitory, but also a more permanent phenomenon. In countries such as France and Canada, every citizen has the right to a bank account. Yet if the six largest banks in the UK took the issue of financial exclusion seriously, they could eradicate the problem,” he concluded. ENDS

Notes to editors:

John Wilson, Professor of Banking and Finance at the University of St Andrews and Donal McKillop, Professor of Financial Services at Queen’s University, Belfast will address the Public Management and Policy Association think-tank at 5.40pm today (28th March 2007). The lecture is free and open to all members of the media.

For more information or to reserve a place contact: Richard Taylor, press officer PMPA, tel. 020 7543 5687, email Richard.taylor@cipfa.org

Issued by Press Office, University of St Andrews

Contact Gayle Cook, Press Officer on 01334 467227 / 462529, mobile 07900 050 103, or email gec3@st- andrews.ac.uk

Ref: Financial Exclusion 280307

View the latest University press releases at http://www.st- andrews.ac.uk

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