A recent report form Deloitte presented a very compelling business case for financial services businesses to support financial inclusion within their communities, not only because it is the right thing to do but also because it will enable them to build more trusted relationships with existing and new.
Sally Rochester, Director of Risk and Regulation at Deloitte Guernsey explains more…
As part of Deloitte’s commitment to 5 million futures and sustainable finance, we recently published an in-depth report on the issues preventing financial inclusion (Growth through financial inclusion | Deloitte UK).
What is Financial Inclusion?
Financial inclusion means making financial products and services accessible and affordable for everyone who needs them. Those locked out of the “mainstream” financial system are often penalised by having to pay more for everyday services and products. Such a situation can cost the average low-income household an additional £490 a year, but for more than one in 10 of these households it costs at least £780 more per year.
What issues create this problem?
While poverty plays a large part in identifying people who are financially excluded, there are other factors at play.
All of the issues listed below can contribute to financial exclusion:
Gender – Lower-paid jobs such as carers, cleaners, caterers, cashiers and clerical jobs are dominated by women. There are 33% more women on zero-hour contracts than men and women are paid an average of 17.3% less than men.
Ethnicity – People from BAME backgrounds are more likely to be the lowest paid workers in any sector. Research also shows that people with Asian or African-sounding surnames have to send nearly twice as many CVs to get a job interview.
Age – Older people may suffer from reduced mobility, physical disabilities, risk of financial abuse and a significant fear of fraud. Meanwhile, the squeeze on pay and the prevalence of insecure work means young people struggle to save. Many younger people are resorting to high-cost credit.
Health and Disability – Disabled people are disproportionately affected due to the high cost of living with disability and the additional costs of financial products and services, like insurance. Research shows that 12% of disabled people cannot physically access their bank and 22% said they are forced to pay higher premiums because they are disabled.
Mental Health and Addiction – People with mental health issues can struggle to stay in work or manage spending, while being in debt and having financial worries can cause severe stress and anxiety-the two issues feed off each other and may create an ongoing cycle. People experiencing mental health issues may display addictive behaviours such gambling, alcohol and drug use.
Financial Literacy and Education – Financial services are complex and we have found that financial literacy and education present considerable barriers to financial inclusion.
Digital Exclusion – With the widespread closure of bank branches in recent years, the ability to access financial services now depends on costly technology, digital literacy and access to the internet. Older people are less likely to have the digital literacy skills needed to access information online while some younger people struggle to pay for the digital technology required to connect effectively.
What action should be taken and what opportunities will it bring?
A complex issue needs a range of responses and our research enabled us to identify a number of actions that would significantly combat financial exclusion and present opportunities for financial services providers, charities and education.
Firstly, the banking sector, charities and social enterprises should forge stronger links to tackle the challenge. Charities may only become aware of a client’s financial difficulties when the situation has become extreme. Through a more rounded relationship, the third sector and banks could work in partnership to provide earlier and more effective intervention. Research from our Better Banking survey demonstrated that customers are more likely to choose a bank which makes a positive social impact.
Systemic change is required within financial services so that banks are more approachable and specialised support is provided to people who are financially excluded. Being able to interact face to face with someone and engage at frequent touch points with support providers is crucial for establishing strong, authentic and trusting relationships.
A deep understanding of such clients can inform the development of services and products specifically designed to target an individual’s needs and wants.
There is a clear need for simple and targeted financial education. Low literacy and numeracy skills in the population as a whole, combined with limited access to effective financial education, are making financial decision- making increasingly onerous for consumers. Lastly, we believe that there is work to be done for financial services businesses to become fully inclusive. We believe there is an opportunity for banks to recommunicate their values and explore a range of opportunities to strengthen inclusion and create opportunities to support the more vulnerable through re-skilling and apprenticeship opportunities.
There is also an opportunity for banks to improve diversity within their organisations by recruiting and investing in the development of more diverse talent.
*Deloitte’s 5 Million Futures Social Impact Strategy
Deloitte’s social impact strategy 5 Million Futures, aligned with the UN’s SDGs, seeks to address inequality by overcoming barriers to education and employment, empowering individuals with the skills needed to succeed in today’s economy.
In Jersey, we are proud to support Every Child Our Future with numeracy and literacy programmes to support children’s education. In Guernsey, as well as our partnership with GROW, which provides a safe and secure working environment for people with learning and other disabilities, we are proud to provide pro-bono audit services to Guernsey Community Savings (GCS), a non-profit making charitable organisation helping financially excluded Guernsey residents access basic financial services. GCS is currently working with financial services businesses to identify a volunteer cohort who will help deliver its services and support those who are financially excluded.
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