Reducing financial exclusion is important in improving social inclusion and mobility. Financial exclusion costs money, it augments poverty, can cause mental health problems, family breakdown and undermines interventions designed to increase well-being.
There are multiple issues as to why people and families are financially excluded these include: learning disabilities; mental ill-health; low levels of English and confidence; and lack of effective communication skills. The financially excluded pay higher transaction costs, and are unable to access normal credit services often leading to them having to use companies charging high interest charges and loan sharks.
The statistics outlined below show the need for a coordinated approach to tackle financial exclusion and build financial capability:
- 1.4 million people have no transactional bank account
- Around 7 million people on the lowest incomes use sources of high cost credit
The Department for Work and Pensions recently conducted a feasibility study to show the potential to increase access to affordable credit through credit unions. It showed that credit unions could increase access to basic financial services – banking, savings and credit – for up to a million more people on lower incomes. It argues that this could potentially save low income consumers millions pounds of interest.