What is financial inclusion?
Financial inclusion is a term used to refer to the inclusion of people in a modern financial system fit for everyone regardless of factors like income. For any economy to enjoy consistent growth and prosperity, financial inclusion is of utmost importance. Although Britain is a global leader in financial services, there are still people who lack access to basic banking services. According to the latest World Bank statistics, over 2 million UK citizens are unbanked (don’t have bank accounts).
The UK government understands the importance of financial inclusion which is why a special commission dubbed; Financial Inclusion Commission was formed recently. The commission has members from all sectors including politicians whose aim is improving UKs financial wellbeing.
Financial exclusion brings forth many problems. For instance, citizens who are financially excluded don’t have access to basic financial services which prevents them from participating fairly and fully. Financial exclusion has a negative effect on education, health, employment, housing as well as the overall well-being.
Anyone who is not financially included is financially excluded. Financial exclusion affects different people at different times. People with unstable or low income are usually the worst hit by financial exclusion. Other groups of individuals who are bound to be affected include; immigrants, disabled people, single pensioners, lone parents and people who have stayed for a long time without work. Part-time workers and students are also affected by financial exclusion in the UK.
Financial inclusion statistics in the UK
According to recent World Bank statistics, the UK ranks 9th in the world in regards to financial inclusion. The UK has over 1.5 million unbanked adults. Approximately 50% of unbanked adults are interested in having a bank account.
Of all the UK citizens with bank accounts, 50% prefer to handle their money in cash. Customer satisfaction levels in the banking industry stand at 60% for the 4 largest providers.
The newly banked incur the highest penalty charges i.e. approximately 5.6 charges every year. In fact, 26% of newly banked UK Citizens have suffered penalty charges exceeding their gains in savings. Also, 15% of all newly opened accounts are either abandoned or closed.
Between years 1989 – 2012, the UK banking industry lost approximately 7,500 bank & building society branches due to closure. This represents 40% of the entire industry the most affected areas being low-income areas.
Unsecured consumer credit has increased drastically (tripled) in the past two decades from £51.8 billion to £160.4 billion. It is estimated that over 2 million people take out high-cost loans every year in the UK because they lack access to cheaper forms of credit. Between 3 and 7 million households use any one or more forms of high-cost credit. 49 to 64% of all UK households hold one or more forms of unsecured credit.
The payday loans market has enjoyed the highest growth of all unsecured lending markets. The market has grown from just £330 million to over £3.7 billion in the last decade.
According to the Financial Inclusion Commission, over 13 million UK citizens lack enough savings to cater for their monthly expenses for a month if they suffered a 25% income cut. The same statistics indicate that UK citizens save less than their counterparts in the EU. Of all UK households, only 41% are active savers.
Insurance penetration and uptake statistics are also valuable when assessing financial inclusion in any country. In the UK, 50% of households falling in the bottom half of UKs income distribution chart lack basic insurance coverage i.e. contents insurance. Only 20% of all average income households have contents insurance despite the fact that households which lack contents insurance are three times more likely to be burgled compared to those with insurance.
A lot need to be done about financial inclusion in the UK. Although only 2 million out of the 64+ million citizens lack basic financial services like banking, UK citizens are still lagging behind in regards to other aspects of financial inclusion i.e. insurance and access to affordable credit. The UK is also lagging behind on saving. However, with the Financial Inclusion Commission in place, the UK is headed for better days.