Banking for All

This report explores the persistent challenge of financial exclusion in the UK.

Despite the efforts of successive governments over the last decade, millions of people across the country have limited access to financial services. Financial exclusion in the UK ranges from the extreme end – the 1.5 million adults who do not have a bank account and those whose credit history cuts them off from affordable sources of credit – to those who lack practical money management skills and financial knowledge, and are thus unable to track their income and outgoings, or build up a savings buffer to cope with financial shocks.

The unbanked and underbanked are hit by increased costs from a number of different sources, including additional costs on energy bills and missing out on the best deals on goods and services that can only be purchased online and through direct debit payments. They typically face higher borrowing costs, and find it harder to make investments such as buying a house. Money problems resulting from financial exclusion can also have a significant effect on wellbeing and health.

Banking for All reflects the findings of a consultative process Demos has conducted, with the support of Lloyds Banking Group, over the first half of 2016 – bringing together politicians, civil servants, and representatives from commercial banking, credit unions and charitable organisations (including housing associations, financial education providers, debt advice charities, and food banks) to explore how financial exclusion might be tackled in a more coherent, coordinated way.

Key Recommendations

1. All Sectors – Local charities, credit unions, bank branches and local authorities should work together to raise awareness of and refer to each other’s services. For example, banks should share anonymised data with credit unions to explore ways to target and effectively communicate with those most likely to use pay day loans, who would be eligible for credit union services.

2. Charities – Demos’ report identifies local charities, in particular, as a key resource for targeting those most at risk. Local organisations that work with homeless people, food bank visitors, housing association tenants or ex-offenders have the potential to advise financially excluded people who would otherwise be hard to reach. But charity staff that Demos spoke to were reluctant to give basic financial guidance due to many believing the FCA regulations on organisations giving financial advice are more restrictive than they actually are.

3. Government – The Government should allow Lifetime ISA customers to borrow without incurring a charge if the borrowed funds are fully repaid, and encourage employers to offer to provide employee contributions to the Lifetime ISA through payroll. In the long-term, the Government should introduce an auto-enrolment requirement on employers for savings.

4. Education – Building on Demos’ extensive work on character education, Banking for All also highlights the importance of focusing on developing practical money management skills within and outside of schools, as well as placing a greater emphasis on the development of character traits – like self control – that are proven to be associated with positive financial behaviour in adulthood.

5. Banks – Banks should offer services – including nudges and ring-fencing – that help customers to separate out their savings without incurring a loss of earnings on interest. Banks should also offer finance tutorials to customers as a way of achieving better lending rates, and design and pilot money awareness courses to those who go into unarranged overdrafts or fall behind on loan repayments. As with driving awareness courses, where drivers can attend to avoid getting points on their licence, banks should offer to wave penalty fees if customers attend.

6. Digital Services –Digital services have helped many people track their money and manage their finances better, however many people remain IT-illiterate, and Demos suggests that the Money Advice Service and Doteveryone should work together to ensure efforts to build financial capability and the campaign to get more people online complement each other.

Read the full report here.