According to the Inclusion Foundation, around 1.3 million UK adults currently face financial exclusion, with 1 in 4 experiencing it at least once in their life.
What is Financial Inclusion?
Financial inclusion is when individuals have equal access and opportunity to financial products and services that meet their needs, regardless of their own background or income.
Therefore, working to create financial inclusion is an essential way in which we can work to create equality.
Financial Education
One vital step in creating financial inclusion is through financial education, as individuals need the skills and knowledge necessary to use financial products and services.
“In addition to building individuals’ skills and confidence, the government is working with partners to make financial communications easier to understand. HM Treasury have been working closely with Plain Numbers, an organisation that seeks to help regulated firms to better support their customers in understanding important communications.”
Whilst this is certainly positive progress, it is notable that they don’t actually say how they are building these skills and confidence. Perhaps we should be attempting to teach financial literacy at an adequate level throughout the education system so that children grow up to understand these financial products and services.
However, as stated by the FCA, “education alone is not enough. Sometimes, markets do not work well to produce good outcomes for consumers.”
Albeit a very important one, financial education is just one component in creating financial inclusion.
As noted by the FCA, we tend to need a current or checking account to be paid and to pay bills, yet by 2020, 1.2 million UK adults still had no current or e-money account.
They also found that many UK households were struggling to access credit, or struggling to access it at reasonable prices.
Many of those on lower incomes are unable to access financial advice, which can be an important tool for understanding, and dealing with, things like pensions, savings and investments.
They also found that 1 in 10 UK adults did not have access to an insurance product and that those in low-income households were less likely to be insured and more likely to face higher premiums if they did have insurance.
All of these things, combined with their finding that 1 in 5 UK adults have low financial capability, perfectly sum up the issues of financial exclusion.
Financial Inclusion Helps Economic Growth
According to a study conducted by Azimi, financial inclusion helps create inclusive growth. He found that whilst financial inclusion had more of a positive impact on economic growth for low-income countries, it still increased the economic growth of middle-income, upper-income, high-income, OECD and non-OECD countries.
From a social perspective, financial inclusion is vital if we want to work towards achieving equality. However, it also has positive economic effects as it helps to stimulate the economy and trigger growth.
by Red Star Wealth
The Government has recently launched an 8 week public consultation regarding the regulation of the Buy Now Pay Later (BNPL) credit industry.
An Overview of BNPL
BNPL firms tend to offer short term interest free loans to enable customers to spread out payments for their purchases.
Because repayment instalments are free, BNPL financing can reduce consumers’ perceived risk of debt, encouraging them to spend money they don’t actually have.
BNPL financing is largely unregulated, with many consumers unaware of the potential consequences of missed payments.
The Stats…
According to Equifax, at least 15 million people in the UK currently use BNPL purchasing, with 1/3 of those spenders falling in the 20-30 age category.
Adobe Analytics found that purchases made using BNPL services made up 12% of online orders this January, compared to 10.7% in January 2022. We can clearly see that more and more consumers are turning to BNPL, seeking to spread the costs of their purchases due to being unable to afford them at the moment of buying.
The above graph, courtesy of Finder, illustrates the problems that arise with BNPL, with many turning to further borrowing to pay what they owe to these firms. This can be seen with 26% using their credit card to pay off BNPL purchases, 9% accessing their bank overdraft and 14% taking out other forms of loans (personal, payday and guarantor).
The Promise of Protection
Regulation of the BNPL sector has been discussed since 2021, so it is long overdue. As stated by Claer Barrett, author of What They Don’t Teach You About Money, “compared to the booming nature of Buy Now Pay Later, the pace of regulation has been glacially slow.”
As it currently stands, BNPL agreements involve minimal credit checks with a lack of requirement for lenders to supply important information about their loan agreements to borrowers. This enables consumers to get into a situation where they are borrowing more money than they can actually afford to repay.
This Tuesday, on 14th February 2023, ministers launched an 8 week consultation into the regulation of the BNPL credit industry. New proposals would mean BNPL products would be regulated by the Financial Conduct Authority, with consumers able to report complaints to the financial ombudsman.
Once given new powers to regulate the BNPL industry, the FCA will consult on rules for the sector to follow, such as mandatory affordability checks, licensing of operators, and fair marketing.
The Government has estimated that 10 million consumers could be protected from “unconstrained borrowing” as a result of these measures.
To access the consultation on this draft legislation of BNPL regulation, click here.
To read more about the dangers of BNPL purchases, check out this blog from our sister company.
by Red Star Wealth
Citizens Advice has called for a ban on customers being forced onto prepayment meters by energy companies until new protections are brought into force.
What are Prepayment Meters?
Often referred to as ‘pay-as-you-go’ meters, prepayment meters are when users have to pay for their energy before using it. They mean that you can pay small amounts often to top up your energy, but they often work out as more expensive than a direct debit deal.
Users buy credit for their meter from a top up point (often found in a local shop or Post Office) which transfers money onto a card or key. Alternatively, they can top up online via an application on their phone.
Consumers have to pay a daily fee called a ‘standing charge’. You also pay this with normal meters, but with a prepayment meter you need to ensure that you have sufficient credit to pay it. This charge comes out even when you use no gas or electricity.
What is the Issue?
Many UK adults are unable to afford their energy bills and so are being forced onto prepayment meters, but then they can’t afford to top up their credit on these either!
Source: Citizens Advice
In 2022 alone, Citizens Advice found that more people were unable to top up their prepayment meter than in the whole of the last 10 years combined. They also found that 3.2 million people across Great Britain were unable to afford to top up their prepayment meter and so ran out of credit. This equates to 1 person every 10 seconds having their energy supply cut off.
Know your Rights
If you think you can’t afford to top up your prepayment meter, you must contact your energy supplier. Ofgem rules stipulate that they must offer you emergency support.
This support includes:
Emergency credit if your meter runs out
Friendly hours credit if top up points are closed and your meter is running low
Extra support credit while you work out ways to pay if you are vulnerable
It’s also worth checking out Citizens Advice’s page on rules that your supplier has to follow with prepayment meters.
British Gas Makes a Step in the Right Direction
British Gas has now said that it will stop remotely switching people onto prepayment meters through their smart meters when they fail to make utility bill payments.Chris O’Shea, the boss of British Gas, also stated that they would be adding additional vulnerability checks. This certainly seems like a step in the right direction on the road to protecting vulnerable people from being left without heat or light.
This said, they have not committed to stopping forced installation of prepayment meters in person…
Join us next Friday for our blog discussing the pros and cons of Smart Meters…
by Red Star Wealth
Separation and divorce can be difficult enough without also having to worry about the effect on your finances.
Does Divorce Affect my Credit Score?
In isolation, being divorced does not affect your credit score. Your credit report does not take into account the legal status of your relationship.
However, divorce can massively disrupt people’s finances, which in turn can affect their credit scores if they start failing to make payments for bills and loans.
Additionally, many people have financial agreements in both spouse’s names when married, whether it be a utility bill or a mortgage. If you take out shared finance with someone else you are now financially associated, which does show up on your credit report.
Joint Accounts
As long as a joint account stays open with both names on it, both parties are legally responsible for it, including responsibility for any payments of bills and subscriptions.
If you break up with your partner or spouse and agreed they will make these payments and they fail to, you will also be held responsible for the missed payments.
Therefore, it is important that you close any shared accounts, or convert them into individual accounts. When divorcing, you will have to sort out the division of assets before doing this, which you can use a divorce mediator or solicitor to help with.
When you do close any joint accounts, make sure you make note of any direct deposits so that you can contact the parties involved to change the transactions to your account.
What is a Financial Association?
If you have joint finances or a joint credit account with another person, you are financially associated.
Financial association is not bound to marriage or cohabitation. Marrying someone or living with someone does not automatically make you financially associated. Because of this, when a relationship or marriage ends, the financial association does not automatically end with it.
Financial Associations and your Credit Report
Financial associations can have a big impact on your finances. This is because lenders can take into account the credit reports of your financial associations as well as yours. Any negative information against your financial associations’ names can therefore hurt your credit applications.
Financial associations will stay on your credit report indefinitely unless you request for them to be removed. If you break-up with someone or get divorced, your credit report won’t automatically update itself and remove your ex as a financial associate.
It’s important to note that financial associations cannot harm your credit score. Your credit score is personal and belongs completely to you to reflect your own creditworthiness. So, financial associations cannot affect your credit score itself, just the outcome of any credit applications you make.
Once you remove someone as a financial associate, their credit history doesn’t have a permanent mark on your finances where they’ve been able to lower your credit score.
Out with the Old and in with the New
Check all of your accounts even if you think they are solely in your name. If your ex is listed as an authorised user, ring the relevant account provider to remove them.
You can check your credit report to see if you want any financial associations removing. If you do, you should submit a disassociation request to the relevant credit agency.
The credit reference agency then has 28 days to respond. Therefore, it is best to remove associations as soon as you divorce or separate, rather than waiting until you are trying to apply for credit.
by Red Star Wealth
According to The Money and Pensions Service’s Financial Capability Survey, 11.5 million UK adults have less than £100 in savings and only 49% of people could last 3 months or more without borrowing money if they lost their main source of income.
Why Might You Struggle to Save?
It’s difficult to save money if you have any debts because you are tied into making repayments.
It’s also difficult to save when you don’t have a budget plan as it’s harder to keep track of your money. Budgeting can help you see where you might be able to reduce your spending and where (if possible) you can afford to put money into savings. Use our free budget calculator through our sister company’s website if you need some help making your budget!
It’s hard to save money if you have a habit of overspending. It can be easy to spend beyond our disposable income, especially at times like Christmas…
The Cost of Living Crisis
UK savings will likely only decrease in continuing months. This is because many people cannot afford to save money at the moment, giving the huge inflationary pressure on living expenses.
You can only afford to save money when your expenses are more than your income. Therefore, many people might see their savings slowly being depleted, the growth of their savings coming to a standstill, or their savings’ growth slowing down.
Why is Saving Money so Important?
It enables you to achieve your financial goals
You can form an emergency fund for any unexpected expenses. This in turn gives you security and peace of mind as the emergency fund acts as a safety net so that you can afford to cope with the unexpected
It can help you avoid taking out credit, protecting you from entering a cycle of debt. This point is particularly true when considering how many people turn to things like payday loans when they have unexpected bills
It means you can accumulate wealth, which is good if you want to do something like channel money into an investment
It helps protect your credit score as you can make payments on time
If saving for a house, it means you can put down a bigger deposit, meaning you will have a smaller mortgage with more competitive interest rates
We know that it can be really difficult to save money when the price of everything constantly seems to be on the increase. Sometimes saving is not a viable option, as you may simply not have any spare cash to put away. However, if you are able to, building your savings is certainly worth considering…
