Project summaries
There is currently a considerable amount of interest in the issue of financial services and social exclusion. Following the Social Exclusion Unit’s policy action team on financial services in 1999, the government has exhorted banks to offer basic bank accounts and a post office-based universal bank has been announced to help extend banking opportunities. Stakeholder pensions are being developed. The Credit Union movement is in a process of change, as is the Social Fund. Financial regulation, disclosure and league tables are all topics generating debate within government, the industry and the Financial Services Authority. The Department for Education and Employment is currently looking at issues related to financial literacy. Obviously, branch closures are still in the news.
There is widespread agreement about some of the problems that need to be solved, including:
Despite this general interest in access to financial services, there has been little work specifically addressing the financial service needs of young people. This is perhaps surprising given the importance of money management in young people’s transition to independence. This is a subject of concern to many YMCAs and other voluntary organisations working with young people who often have financial problems.
This report summarises the results of a survey of 210 young people in YMCA England hostels and youth work projects. Its main objective is to gain a greater understanding of their needs and aspirations for financial services compared to the products and services that are available to them, and hence to identify the main issues and shortcomings. In addition to the questionnaire, two focus groups were held to help to understand the issues.
The average age of the respondents was 21. Two thirds lived in, and most of the others were participating in YMCA’s youth work initiative.
A quarter were in paid employment, a quarter were in education or training, and two fifths were unemployed. Three quarters of the respondents have a net income of less than £100 per week, and three fifths less than £50 per week.
Most aspects of financial management were ranked as important by most people, with ‘debt’ and ‘money management’ rated the most important. The only issue rated either ‘very important’ or ‘quite important’ by less than half of the respondents was ‘being able to borrow money’.
| Rating each of the following either ‘very important’ or ‘quite important’ | Percentage of respondents | ||
|---|---|---|---|
| ‘very important’ | ‘quite important’ | total | |
| not getting into debt | 74 | 19 | 93 |
| managing money properly | 59 | 31 | 90 |
| being able to save | 50 | 32 | 82 |
| having enough money when I retire | 49 | 27 | 76 |
| being able to insure belongings | 34 | 29 | 63 |
| being able to borrow money | 18 | 22 | 40 |
One third of respondents manage their money using records, either their own records or bank statements. The other two thirds manage their money on a cash basis. Very few (3%) never know how much money they have got.
Just about all respondents agreed that they would benefit from advice on money management, but only a third have had such advice. Of those who had received advice, the most popular source was the family closely followed by friends, banks and YMCA staff.
Of those in paid work, two thirds are paid by direct transfer into their bank account and a fifth are paid by cash. Of those in receipt of benefits, four fifths receive their benefit by girocheque and one fifth by direct transfer into their bank account.
Cashing cheques: around half of the respondents cash cheques by paying them into their account. A third have used a cheque cashing shop at some time.
Obtaining cash: half of the respondents used cashpoint machines to get cash, compared to one fifth who actually used the branch itself. Two fifths obtained cash by cashing their girocheques at post offices.
Paying bills: around half of the respondents have some utilities bills to pay. Half of these pay at least some of their bills by key/card systems, compared to less than a quarter who use cheques or direct debit.
The vast majority (nine in ten) stated that avoiding debt was important, and three quarters viewed it as very important.
However, three fifths have borrowed money at some time, and half are currently in debt. A third of those in debt owe more than £1,000.
Nearly half of those in debt state the main reason as being “not having enough money”. There is no dominant type of creditor, with rent the largest single category (a third of those in debt). Money lenders are hardly used at all; nor are credit cards.
Three quarters of those in debt are taking proactive steps to pay off their debts – i.e. are doing at least one of ‘paying regular amounts’, having monies taken out of benefit/pay’ or ‘cutting back on costs’.
Half of all respondents had applied to the Social Fund. Of those who had applied, four fifths had been successful.
Around half of respondents thought that being able to save was very important.
A quarter either had, or currently have, savings, whilst three quarters never have had. Most keep their savings in a current or savings account.
Very few - one in ten - had home insurance. Half have had their belongings stolen, and three quarters of these were not insured at the time.
Around half stated that they have thought about getting home insurance when they get their own place.
Very few – one in ten – have a pension.
More than half have thought about getting a pension, and more than nine in ten think that they will need to start a pension before the age of 40.
Three fifths stated that they had a current account, with two fifths stating that they did not.
Of those with current accounts, a third said that their account had an overdraft facility, two fifths had a cheque book, and three fifths had a Solo or debit card. Overall, three quarters of all respondents do not have a cheque book, and a half have no sort of electronic card. Credit cards were not widely used.
Two fifths of those without an account had never tried to get an account, two fifths used to have an account, and one fifth had been refused.
Most people were aware of most of the benefits of a current account. The only exception concerned potential savings in the level of utility bills.
The most common problems were ‘going overdrawn when they did not think it could happen’, ‘poor customer service’ and ‘high charges’, each of which had been experienced by about a third of recipients.
Four fifths are either ‘very comfortable’ or ‘comfortable’ with using banks / building societies, compared to half for post offices, a quarter for the telephone, and a fifth for the internet.
Post offices: Three fifths of respondents use a post office at least once a fortnight. One third use a post office less than once a month or never at all.
Banks: A third of respondents use a bank at least once a fortnight. Nearly half use a bank less than once a month or never at all.
‘Good customer service’ and ‘lots of cashpoints’ were each rated either ‘very important’ or ‘quite important’ by nine out of every ten respondents.
Telephone banking: One in eight currently use telephone banking. Of those who did not, a third said that they would consider using it. Of those who expressed a view, only a quarter thought that telephone banking was relevant to them, a quarter thought that it makes it easier to manage money, and a third viewed it as very convenient. On each of these questions, around a half had ‘no view’.
Internet banking: One in fifteen currently use internet banking, although more than half have access to a PC. Of those who did not, a third said that they would consider using it. Of those who expressed a view, only a fifth thought that internet banking was relevant to them, although over a third viewed it as very convenient. The majority expressed ‘no view’ as to whether internet banking makes it easier to manage money or not.
The overall picture that emerges from the survey is of a group of people who have a very responsible attitude to the management of their finances but who have problems due to a sheer lack of money.
| Subject | Evidence of a responsible attitude | Evidence of a lack of money |
|---|---|---|
| Debt | The vast majority think that it is important to avoid debt. Money lenders nor credit cards are hardly used at all. Three quarters of those in debt are taking proactive steps to pay the debt off. |
Half are currently in debt, and a third owe more than £1,000. |
| Savings | Most think that it is important to save. | Three quarters have never had any savings. |
| Insurance |
Two thirds think it important to insure their belongings. Half have thought about getting insurance when they get their own place. |
Only one in ten have home insurance. |
| Pensions | The vast majority think they will need to start a pension before they are 40. | Only one in ten have started a pension. |
One implication of this is that many of the respondents are potential future customers of financial services relating to savings, insurance and pensions. YMCA clients are generally in transition – moving out of supported accommodation and into independent living. Whilst few of them currently have savings, insurance and pensions, most of them aspire to have. The problem that they currently face is lack of money, but this might well change as they grow older.
The one issue that all the respondents agreed on was that they would benefit from financial advice. But only a third stated that they had ever received such advice and half stated that they never had.
This raises questions for both the financial services industry, for advice services such as the Citizens Advice Bureaux and for YMCAs, each of which could usefully re-consider its positioning towards young people on low incomes.
In this context, it is interesting to note that a group set up by the Department for Education and Employment The Adult Financial Literacy Group (AdFLAG), established in February 2000. is due to report soon on ways to improve the financial literacy of the adult population with a specific emphasis on those who are disadvantaged. It is likely to conclude that, whilst providers of financial advice do not need to be from authorised financial advisors, they do need to be trained and competent in financial matters and they do need to understand the specific needs and challenges of people on low incomes or in particular circumstances.
The report is also likely to emphasise the role of voluntary sector organisations in improving financial literacy and the importance of engaging people in matters financial at key life events when they are at their most receptive.
Specifically relating to YMCAs, a third of respondents said that they would go to YMCAs for financial advice but only a tenth had actually done so. Should YMCAs think about making financial advice one of their core services to their clients, training their staff and marketing the service accordingly? Would this make a difference to the quality of the advice offered and the extent to which it was sought?
Taking this argument one step further, should YMCAs think about setting themselves up as ‘gateway’ organisations which help to organise financial services on behalf of their clients by acting as an intermediary between the individual and relevant service providers?
Avoidance of debt was ranked as the most important financial issue by the respondents. This, combined with the fact that half of the respondents are currently in debt, reinforces the importance of debt to young people on generally low incomes. In this context, two points are of particular note:
The Social Fund, mainstream banking, the courts and council tax are all major creditors, but both credit unions and money lenders hardly feature at all. This contrasts with the recent focus of government policy relating to debt which has mainly concerned itself with credit unions and money lenders. Eligibility criteria for the Social Fund and the spiral of debt exacerbated by court fines were two of the issues raised in the focus groups as possible issues for review.
The most common creditors are YMCAs as landlord (over a third of those in debt). Clearly, this raises potential conflicts of interest between YMCAs as landlord (where YMCAs are all under pressure to keep arrears down) and YMCAs as advisor/supporter of its clients. How should this balance best be struck?
The majority of respondents seem to view bank accounts as a way of storing money, using them as a vehicle for receiving money from employers and for obtaining cash. It is widely agreed that basic bank accounts – with no overdraft facilities and no risk of unexpected charges – are one vehicle for meeting such a need. Furthermore, a common theme of the focus groups was the increased comfort that came from the knowledge that there would be no unexpected charges. In this context, the financial services industry appears to have had some success: more than half of the current accounts did not have an overdraft facility and a third had a Solo card.
In contrast, however, fewer respondents seemed to view bank accounts as a cheap way of paying bills. So, for example, the most common way of paying bills was by key/card systems. Such systems typically involve paying around 25% more for gas, electricity etc than if payments are made by cheque or direct debit. Less than half of the respondents were aware of this.
Perhaps due to a lack of awareness about this issue, two fifths of those respondents who were not in full-time employment did not have a current account. This raises issues about whether the banks and/or YMCAs should be publicising the bill payment advantages of a basic bank account as a way of increasing coverage.
Similar issues arising in relation to the payment of benefits, where girocheques cashed at post offices remain predominant rather than automated credit transfer into a bank account.
In terms of use of current accounts, the overall picture that emerges is one of the widespread use of cashpoints but only limited use of branches or telephone / internet. This reflects the use of a current account as primarily a vehicle for storing money and obtaining cash. There is then no need to use branches very often, and no point in either telephone or internet banking.
In this context, it is interesting to note that, whereas four fifths state that they are comfortable with using banks/building societies, the equivalent figures are only a quarter for the telephone and a fifth for the internet.
Finally, very few of the respondents current seem to use post offices as financial institutions, other than for cashing girocheques. Only half said that they would be comfortable using post offices in this way, and some cited the lack of cashpoints as a major disadvantage. This obviously raises issues about the potential take-up of the universal bank initiative recently announced by the government. It also raises questions about whether the post office has a clear strategy for attracting the custom of young people, including those from disadvantaged backgrounds.
Summarising the discussion above, the table below list some of the issues that the financial services industry, the government and YMCAs themselves might like to consider.
| Summary of issues arising | |
|---|---|
| For the financial services industry to consider: | YMCA clients as future customers of financial services relating to savings, insurance and pensions. |
| Promotion of basic bank accounts as a way of reducing utility bills and/or receiving benefits. | |
| Balance between cashpoints and branches. | |
| Relevance of, and comfort levels with, both telephone and internet banking. | |
| For the government to consider: | Eligibility criteria for the Social Fund. |
| The spiral of debt exacerbated by court fines. | |
| Comfort levels and/or habits relating to automated credit transfer of benefits. | |
| Need for, and barriers to, widespread take-up of the universal bank. | |
| For YMCAs to consider: | How to balance its two roles as landlord and advisor/supporter of its clients. |
| Possible provision of financial advice as a core service. | |
| Possible role as a ‘gateway organisation’, helping its clients obtain financial services. | |
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