The Big Lottery Fund, the UK’s largest community funder, has today published a new report that will help build the evidence base for the Government’s dormant accounts financial inclusion initiative. The report – Understanding the decision making of people who are experiencing financial exclusion – builds upon existing financial exclusion knowledge by sharing the stories of those with real life experience of struggling to access fair, appropriate and affordable financial products and services.
The report identifies some of the key challenges faced by the financially excluded. Contrary to popular perception, it identifies that many of those turning to high cost credit are fully aware of the extortionate rates they will be charged, but feel they have no choice but to go ahead with the provider. This is because they need the money urgently and for a necessity – leaving them feeling backed into a corner and unable to take the time to shop around.
Others are also aware that they are unlikely to be accepted by a cheaper, mainstream lender. This is exacerbated by low awareness of responsible lenders, such as credit unions and Community Development Finance Institutions, coupled with a perception that high cost lenders aggressively target low income areas with their marketing.
The research took place in a series of sessions held earlier this year with 62 people from a variety of backgrounds and situations, including unemployed and underemployed women from minority ethnic groups, young and lone parents, people in work on low incomes, and young men who have left care in the last few years. It focused on three financial products: credit, savings and insurance for people with less than £500 in savings. It shows how those already using high cost credit are caught in a spiral that they struggle to get out of – to break the cycle they need to be able to save money, but the high cost of credit repayments prevents them from being able to set money aside.
Even where people are not making credit repayments, most say that they find it hard, or impossible, to save regularly. Despite this, many budget carefully and make small, ad hoc savings – usually cash in jars – that they dip into as necessary. While it’s important for them to have easy access to money to help them get by, this means that their savings rarely build up.
When it comes to insurance, there is low awareness of home contents insurance – particularly among younger people – little trust that insurance companies will pay out in the event of a claim and a perception that insurance is expensive and difficult to understand. Although most councils offer their tenants ‘add on’ contents insurance (added to their rent for a low weekly cost) awareness of these schemes is also low.
Overall, feedback from the sessions was that credit needs to be ‘decided quickly, from a trusted source, and ideally flexible’; savings need to be ‘easy to do and not too easy to stop’; and insurance needs to be ‘understandable, appropriate, and from a trusted source’.
The report is to form part of the evidence-base underpinning the Big Lottery Fund’s involvement in a £55 million funding strand intended to focus on tackling financial exclusion. This was announced earlier this year by the Department for Digital, Culture, Media and Sports (DCMS). The funding comes from bank and building society accounts that have not been used for fifteen years and where customers cannot be contacted. These are known as dormant accounts and the £55 million will be awarded to a new dedicated Financial Inclusion organisation, which will operate independently of government.
The research was conducted through telephone interviews and focus groups held across the country between March and June 2018. Participants were asked about their experiences and attitudes towards borrowing money, insurance products, and making savings, and any challenges they’d faced in doing this. Participants were also encouraged to give suggestions for possible solutions they thought would work best for them.
Gemma Bull, Big Lottery Fund Portfolio Development Director, England said: “Those who are living with the daily effects of facing barriers to financial inclusion are best-placed to tell us what solutions would make things better. We hope that the end user perspective reflected in this report will be useful in supporting the work of not only the new Financial Inclusion organisation that is being set up, but also other funders, policy makers and practitioners as we seek to tackle the challenge of improving access to fair and affordable financial products and services for all.”