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Breaking barriers

Tackling financial exclusion has been an important aspect of the

Government drive to combat social exclusion. People are financially

excluded when they do not have access to basic financial services.

The Government&#39s own social exclusion unit has estimated that about

10 per cent of the adult population (around four million people) are

without a bank or building society account. Around one in four people

do not have home contents insurance and over a third of households

(in 1997/98) said they had no savings or investments at all.

The financial insecurity this brings is acute. The consequences of

lacking insurance are obvious and without savings families have no

financial cushion to tide them through difficult times. Not having a

bank account adds around £5 a week in transaction costs. This is

the scale and impact of the problem but why, in a modern economy, is

financial exclusion persisting?

Since 1997, the Government and the financial services industry have

been working together to make progress. The introduction of basic

bank accounts by high-street banks, the move towards a universal bank

run through the post office network and the reform of credit unions

are all helping but progress has been slow.

There are a number of reasons why people have been reluctant to

engage with financial institutions. One explanation is that people

themselves do not see it as a priority and are more confident living

with cash transactions alone. Another, perhaps more significant,

reason is the distrust that individuals have in financial

organisations. This is an ongoing challenge for the industry.

The Government&#39s agenda to combat financial exclusion has been driven

by two different concerns. The first is the close relationship

between financial and social exclusion. It is estimated that around

50 per cent of people with no connection with financial institutions

live in the 50 most deprived areas in Britain.

Efforts to tackle financial exclusion must be taken forward in tandem

with tackling this broader disadvantage – regenerating run-down

estates and developing the skills and job opportunities of people

living in these areas.

The Government&#39s second key driver is its own ambition to deliver

social security benefits electronically. Clearly, it cannot do this

while so many do not have bank accounts.

Because these main drivers have been coming from central Government

and are therefore top-down, the thinking has tended to be


Policy reform has focused on new products and institutional change

rather than working with deprived communities and individuals to

establish their needs and demands. Recent work by researchers at the

University of Bristol has demonstrated the importance of negotiating

with local people to build up trust and identify their needs.

A more comprehensive strategy is needed. First, public and financial

agents need to get to people. This will require the development of

outreach functions carried out by active local agents. Second, advice

and information is needed to bring them into the mainstream financial


But who provides this outreach and who gives the advice? A number of

bodies already play a role and this needs to be developed. Perhaps

most hope lies with the development of local partnerships between

community-based organisations – such as housing associations – and

established financial advisers and providers. This way, the expertise

of different organisations can be drawn on in the delivery of

services to communities and individuals.

Alongside this approach, continued emphasis needs to be given to

tackling low levels of financial literacy. Indeed, we need to think

more broadly about the barriers that those on low incomes have to

overcome before they engage with financial institutions.

A successful strategy to deal with financial exclusion would involve

a thorough and holistic consideration of the issues experienced by

local people.

Interestingly, research also shows that around a quarter of people

who are not using mainstream financial services have done at some

point in the past. Financial exclusion is a dynamic process and

efforts should be made to ensure people continue to use financial


We need to learn more about why so many people are lacking basic

financial goods. The Government&#39s community finance and learning

initiative is currently piloting how to deliver a joined-up approach

to financial exclusion that is rooted in the community.

The piloting of the saving gateway (the new saving vehicle targeted

at people on low incomes) will be another opportunity to learn more

about how people can break free from financial exclusion.

There is no straightforward answer to tackling a multifaceted problem.

We do know that the provision of basic bank accounts and the

introduction of a universal bank are necessary but will be


More is needed to address both perceived and real barriers to

accessing mainstream financial services and greater efforts must be

made to reach out to excluded groups.

Sue Regan is senior research fellow at IPPR


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