What is financial inclusion?

Financial inclusion has its immediate roots in a set of debates during the 1990s. Originally, the focus of these debates was on describing and combatting ‘financial exclusion’. Financial exclusion has been understood in various ways and its meaning has changed over time. Leyshon and Thrift (Reference Leyshon and Thrift1995) use financial exclusion to refer to the lack of access that people within certain communities have to a physical bank branch. The Labour government that was elected in 1997 applied the term financial exclusion beyond physical bank branches and towards other financial services. In particular, the Labour government believed that there was a wider range of ways, beside material inequality, by which people might be excluded from opportunity within society (Blair, Reference Blair1998; Giddens, Reference Giddens1998). Social exclusion was used to capture the idea that exclusion went beyond material inequality. Research suggests that financial exclusion is linked with other health or social outcomes. For example, financial exclusion is associated with the likelihood that people suffer from poorer mental health or may be underweight (Anderloni et al., Reference Anderloni, Bayot, Blendowski, Iwanicz-Drozdowska and Kempson2008; Dobbie and Gillespie, Reference Dobbie and Gillespie2010; Muir et al., Reference Muir, Marjolin and Adams2015). Policy Action Teams (PATs) were set up to explore different facets of social exclusion. PAT number 14 was charged with examining exclusion from financial services and published Accessing Financial Services in 1999 (HM Treasury, 1999).

In the foreword to Assessing Financial Services, the Economic Secretary to the Treasury Melanie Johnson says that: ‘Financial exclusion means that many in those communities, often those in greatest need, do not have the access to financial services the rest of us enjoy, and are worse off as a result’ (HM Treasury, 1999: 4). Exclusion is understood here to refer to the lack of access that people may have to financial services. Similarly, HM Treasury published a strategy document in 2004 called Promoting Financial Inclusion. This document states that:

This statement notes that although financial exclusion may be understood in different ways, a common theme concerns the lack of access that people have to financial services. More recently, financial exclusion has been extended to include the idea of self-exclusion. This covers a situation where people have access to financial services but decide for a variety of reasons to exclude themselves from participating in the financial system (Salignac et al., Reference Salignac, Muir and Wong2016; House of Lords Select Committee on Financial Exclusion, 2017).

This understanding of financial exclusion meant that financial inclusion was understood then to refer to steps to improve the access that people have to financial services (Financial Inclusion Commission, 2015; House of Lords Select Committee on Financial Exclusion, 2017). Salignac et al. (Reference Salignac, Muir and Wong2016) argue that this ‘access-point’ definition gives rise to a supply and demand conception of financial inclusion. Demand side factors focus on the individual factors that shape access to the financial system. For example, people might lack the knowledge or skills to make decisions in financial markets. Supply side factors focus on the ways that social policy, regulation and the actions of financial institutions may allow or block access to the financial system. For example, banks might create a barrier for low income people to open accounts by being unwelcoming to these people.

The specific content of financial inclusion policies might depend on the particular causes of financial exclusion. For example, regulation of financial institutions may be the most appropriate response if supply side factors are the main reason for financial exclusion. Government intervention or regulation might force financial institutions to lower the barriers they place on certain groups accessing financial services.

Salignac et al. (Reference Salignac, Muir and Wong2016) argue that the access point definition gives rise to a narrow view of financial inclusion. They say that it is important to recognise that people draw on different resources in their dealings with the financial system. For example, Leyshon and others have developed a ‘financial ecologies’ approach that highlights how different parts of the population have access to different networks and resources in their engagement with financial markets (Leyshon et al., Reference Leyshon, Burton, Knights, Aleroff and Signoretta2004; French et al., Reference French, Leyshon and Wainwright2011; Salignac et al., Reference Salignac, Muir and Wong2016). Leyshon et al. (Reference Leyshon, Burton, Knights, Aleroff and Signoretta2004) distinguish between affluent middle class consumers and low income groups in their study of access to retail credit and insurance services. These researchers say that these groups live in rival financial ecologies, with middle class networks having good access to mainstream financial services and vulnerable groups having a ‘relic’ ecology dominated by doorstep traders.

Salignac et al. (Reference Salignac, Muir and Wong2016) argue that the financial ecology literature can be used to embed financial inclusion within a wider context. They propose that it is better to refer to ‘financial resilience’ rather than financial inclusion as financial resilience includes the different resources that people have within the financial system: ‘Resilience refers to the ability of drawing on internal capabilities (skills, traits, behaviours, values) . . . and appropriate, acceptable and accessible external resources and supports’ (Salignac et al., Reference Salignac, Muir and Wong2016: 275, italics in the original). The term financial resilience has appeared more regularly within recent policy debates and tends to mean the ability to maintain or restore current living standards when faced with adverse events (Financial Inclusion Commission, 2015; Chartered Insurance Institute, 2016).

Key examples of financial inclusion policy

Three main themes have guided financial inclusion policy in the UK: reducing the unbanked; access to affordable credit, savings and insurance; and improving financial capability and access to guidance or advice (HM Treasury, 1999, 2004, 2007; Financial Inclusion Taskforce, 2011a, 2011b). UK governments have pursued a variety of initiatives in each of these areas (for an overview of some of these policies see Edmonds, Reference Edmonds2014; Financial Inclusion Commission, 2015; Rowlingson and McKay, Reference Rowlingson and McKay2016; House of Lords Select Committee on Financial Exclusion, 2017).

It is not possible here to review all the different policies across the UK, nor explore the different approaches that have been followed in the devolved administrations in Scotland, Wales or Northern Ireland. This article picks exemplars of financial inclusion policies from each of the three strands of financial inclusion mentioned above. In particular, this section mentions Basic Bank Accounts, matched savings schemes and financial capability policy. The article uses these examples to show the contrasting reactions of the scholarly and policy literatures towards financial inclusion.

Bank accounts are important for receiving transfers of income and are a pre-requisite for other products such as mainstream credit. Employers usually prefer to pay wages directly into a bank account. The lack of a bank account might therefore be a barrier for a person getting a job. People in receipt of state benefits also need a way of receiving their benefits. Government has used Basic Bank Accounts (BBAs) and Post Office Card Accounts (POCAs) to reduce the unbanked. BBAs are for people who are ineligible for a full bank account. BBAs allow wages or state benefits to be paid directly into these accounts and enable account holders to pay bills by direct debit. BBAs are provided by high street banks. In 2003, there were 5.2 million BBAs among the population (Edmonds, Reference Edmonds2014). In 2014, BBAs made up 11 per cent of all personal current accounts in the UK. By 30 June 2016, there were 7.9 million BBAs in the UK (HM Treasury, 2016a). Progress still needs to be made for reducing the unbanked. In 2013–14, there were 1.71 million people who were personally unbanked and this was a rise from 1.5 million unbanked adults in the previous year (Rowlingson and McKay, Reference Rowlingson and McKay2016). A further issue is the extent to which those with a BBA actually engage with banking services rather than simply withdrawing their balance and using a cash management system.

Lack of savings is another current challenge. About half (46 per cent) of the population had less than £1,500 in savings in 2013–14 (Rowlingson and McKay, Reference Rowlingson and McKay2016). The Labour government had planned to introduce a Saving Gateway (SG) policy after the 2010 general election, to help people have a financial buffer to protect themselves against unexpected events. The SG policy was to provide special two year savings accounts aimed at those on low incomes. The government would give a 50p match for every £1 saved into the SG, and the government contribution was to be capped at £300 (Edmonds, Reference Edmonds2009). The Conservative-Liberal Democrat coalition government scrapped the planned national roll-out of the SG. Following the 2015 general election, the Conservative government revived the SG idea by launching a ‘Help to Save’ scheme from April 2018. The Help to Save savings scheme will be open to 3.5 million adults in receipt of Universal Credit (with a minimum weekly household earnings equal to 16 hours at the National Living Wage) as well as those who receive Working Tax Credit. The target population of Help to Save usually face high living costs relative to their income and so are unlikely to have funds left for other purposes such as saving. The government will provide a 50 per cent bonus on savings of up to £50 a month and the bonus will be paid after two years, and there is an option also to save for another two years. Help to Save means that people can save up to £2,400 over four years with the option of a £1,200 government bonus (HM Treasury, 2016b; House of Lords Select Committee on Financial Exclusion, 2017).

In 2003, the Labour government charged the Financial Services Authority (FSA) to develop a national financial capability strategy to improve financial literacy throughout the population. The FSA commissioned a baseline survey of levels of financial capability in the UK in 2005 (Atkinson et al., Reference Atkinson, McKay, Kempson and Collard2006). Five domains of financial capability emerged from the baseline survey work: namely, making ends meet, keeping track of finances, planning ahead, choosing products and staying informed. These five themes formed the metrics used to measure financial capability in the UK. The 2005 survey found that there were shortfalls in financial capability across the whole population, with younger people also having lower levels of financial capability than older people. The FSA's national financial capability strategy focused on the five domains of financial capability discussed within the 2005 baseline survey (Atkinson et al., Reference Atkinson, McKay, Kempson and Collard2006).

In 2010, the FSA's financial capability unit was hived off into a separate Consumer Financial Education Body (CFEB). CFEB rebranded itself as the Money Advice Service (MAS) soon afterwards (http://www.fincap.org.uk/). In 2015, the MAS commissioned another survey of levels of financial capability in the UK. The latest survey found that levels of financial capability had dropped in some areas between the 2005 and 2015 surveys. For example, 22 per cent of people in 2015 could not read the balance on a bank statement and this was up from 9 per cent in 2005. 21 per cent of respondents did not understand the impact of inflation on the real value of money in 2005 but this had risen to 40 per cent in 2015 (Atkinson et al., Reference Atkinson, McKay, Kempson and Collard2006; Money Advice Survey, 2015b).

The financial capability strategy has different initiatives aimed at different parts of the population. For example, the MAS provides resources for the teaching of financial capability within schools. Citizenship education is part of the national curriculum in England for pupils from 11 to 16 years old. Part of the citizenship curriculum for students in key stage 4 (14 to 16 years old) covers: ‘income and expenditure, credit and debt, insurance, savings and pensions, financial products and services, and how public money is raised and spent’ (Department for Education, 2014: 228).

Scholarly reactions to financial inclusion

The scholarly literature is very critical towards the financial inclusion policies mentioned above. Berry (Reference Berry2015) argues that both the BBAs and matched savings schemes represent a situation where people are being shifted from the collective security provided by the welfare state and towards individual responsibility and investment within markets. For instance, he comments that policies such as the SG are: ‘not focused on maintaining or adapting collective forms of protection against risk, but rather displacing ultimate responsibility for welfare to the individual level’ (Berry, Reference Berry2015: 518).

Similarly, Marron (Reference Marron2014) claims that financial capability policies are an effort to turn people into the idealised consumers of neoliberal theory. He writes that people's

Discontent with New Labour probably helps explain the scholarly reactions towards financial inclusion. The financial inclusion agenda is most closely associated with the New Labour era (Rowlingson and McKay, Reference Rowlingson and McKay2016). Financial exclusion became a key concern of government shortly after Labour was first elected to office in 1997 and it tailed off after Labour lost the 2010 general election. New Labour is a source of much disappointment among academics. Critics complain that New Labour did not do enough to challenge a neoliberal orthodoxy within public policy. Indeed, New Labour's modernisation project is thought by many to amount to a capitulation to the free market (Marron, Reference Marron2013, Reference Marron2014; Berry, Reference Berry2015). Berry writes that:

This critical scholarly literature makes a link between financial inclusion and financialisation (Langley, Reference Langley2008; Montgomerie, Reference Montgomerie2008; Froud et al., Reference Froud, Johal, Montgomerie and Williams2010; Coppack, Reference Coppack2013; Van der Zwan, Reference Van der Zwan2014; Appleyard et al., Reference Appleyard, Rowlingson and Gardner2016). Financialisation has different meanings and so lacks a single definition. Van der Zwan (Reference Van der Zwan2014) highlights three themes in her literature review on financialisation: namely, as a regime of accumulation, the dominance of a shareholder model of the firm, and the financialisation of the everyday.

The financialisation of the everyday is the most relevant strand of the literature for financial inclusion. Critics argue that the financialisation of the everyday involves shifting people from the collective security provided by the welfare state and exposing them instead to the risks associated with financial markets. Financialisation is seen as part of a broader neoliberal agenda as it extends the role of financial markets in economic and social life. Rowlingson et al. (Reference Rowlingson, Appleyard and Gardner2016) write that this: ‘financialisation of everyday life’ approach sees citizens being transformed from ‘welfare subjects’ to ‘personal investors’ and ‘personal borrowers’ with a related internalisation of new norms of individual risk-taking’ (Rowlingson et al., Reference Rowlingson, Appleyard and Gardner2016: 530). The figure of the investor-subject informs this critical literature on financialisation. Investor-subjects are expected to be enterprising within financial markets and make the necessary investments to secure their own financial future. This might involve ‘borrowing-to-invest’ where people take on loans to pay for investments (Langley, Reference Langley2008; Marron, Reference Marron2013; Berry, Reference Berry2015). For example, people might borrow on mortgage markets to invest in property. Property is not seen simply as providing a home but an important type of investment.

Although a link is made between financialisation and neoliberalism, the financialisation of the everyday might also refer to a person's ‘lived experience’ or ‘lived reality’ of money (Rowlingson et al., Reference Rowlingson, Appleyard and Gardner2016; Appleyard et al., Reference Appleyard, Rowlingson and Gardner2016). This recognises that it costs people money to live: for example, people need money to pay the rent or mortgage, buy food, or heat the home. Indeed, the economic reality is that many (and perhaps most) of the people who suffer from financial exclusion are not able to be investors within financial markets. The financialisation of the everyday that refers to a person's lived experience of money in principle applies to any economic system. People still need money to live on in a system in which finance is largely socialised. This means that the link between financialisation and neoliberalism refers to a specific version of the financialisation of the everyday but that alternatives exist. Rolling back neoliberalism does not necessarily erase the financialisation of the everyday.

Policy reactions to financial inclusion

The policy literature is much more supportive than the scholarly literature towards the exemplars of financial inclusion outlined above. The House of Lords Select Committee on Financial Exclusion (2017) says that: ‘We recommend that the Government should require banks to promote their basic bank accounts appropriately and effectively, both in store and in advertising’ (House of Lords Select Committee on Financial Exclusion, 2017: 6). The Financial Inclusion Commission (2015) recommends that government explore the feasibility of introducing a savings schemes for those on low incomes. One of the models mentioned is a matched savings scheme that shares many of the features of the SG. The applied literature also calls for financial capability policies to be extended (Financial Inclusion Commission, 2015; House of Lords Select Committee on Financial Exclusion, 2017). The House of Lords Select Committee on Financial Exclusion says that: ‘financial capability is essential in ensuring that individuals can take responsibility for the financial choices that they make; for this reason, adequate provision of financial education is a vital building block in preventing financial exclusion’ (House of Lords Select Committee on Financial Exclusion, 2017: 33).

Many of the contributors to the applied literature have a role within financial services and so might be thought to have a vested interest in financial inclusion policy. For example, the Financial Inclusion Commission (2015) was funded by Mastercard, which provides banking card services. The Financial Inclusion Commission was chaired by Sir Sherrard Cowper-Coles, a former diplomat and Senior Adviser to the Group Chairman and Group Chief Executive of HSBC holdings. Several of the other twelve commissioners were drawn from the financial services sector. For example, Laurie Edmans was Chairman of Marine and General Mutual Life Assurance, Sian Williams was head of Toynbee Hall's national financial inclusion programme and vice-chair Chris Pond was a former director of the Financial Services Authority. Other commissioners included politicians drawn from the main political parties (http://www.financialinclusioncommission.org.uk/commissioners).

Although vested interest might explain some of the support for financial inclusion policy, it is also possible that the policy literature takes a more pragmatic view of financial inclusion than the scholarly research. Some policy contributors and practitioners may share some of the scholarly concerns over neoliberalism but regard financial inclusion as a way of helping people and households cope with this system. A common theme in the policy literature is that financial inclusion is essential for reducing a ‘poverty premium’ from being excluded from financial services:

The poverty premium refers to the idea that poorer people are more likely than others to suffer from exclusion from mainstream financial services. Those who experience exclusion then face extra costs or a premium compared to their peers who can freely access mainstream services. For example, lack of a bank account may contribute to fuel poverty because those on lower incomes cannot take advantage of cheaper deals on fuel bills available to those who can pay by direct debit (Hills, Reference Hills2012; Financial Inclusion Commission, 2015).

Similarly, Lister and Sodha (Reference Lister and Sodha2006) argue that there is a vulnerability context of poverty that means that people can easily tip into poverty. People may find it difficult to cope with a relatively modest and common shock such as a washing machine breaking down. People may have to turn to payday lenders to help cope with this shock. Mainstream lenders may not target poorer people because they are unlikely to be a source of profit for these companies (Leyshon et al., Reference Leyshon, Burton, Knights, Aleroff and Signoretta2004). Those denied access to mainstream credit services might then fall prey to payday or fringe lenders that charge very high rates of interest (Appleyard et al., Reference Appleyard, Rowlingson and Gardner2016). The Competition and Markets Authority (2015) states that there were 1.8 million payday loan consumers in 2012 and the total loans made were worth £2.8 billion. Policies such as the Help to Save scheme are then a coping strategy to help people deal with financial distress. Help to Save is aimed at encouraging those without savings to build a financial buffer to protect themselves against unexpected shocks.

Future directions

The above argues that the scholarly and policy literatures offer contrasting views of financial inclusion. The policy literature does not reflect upon theoretical controversies and instead concentrates on the details of policy. The scholarly literature is much more critical of financial inclusion but does not explore the details of policy in depth. This article now claims that research would be improved if there were greater mingling between the different literatures. This section gives an example of where each literature might draw usefully on the other literature.

The applied literature might not discuss theoretical controversies because it implicitly assumes that financial inclusion is a good thing. Alternatively, the applied literature might be taking a pragmatic view that financial inclusion is necessary for curbing the excesses of the present economic system. In either case, it would still be beneficial for the applied literature to engage with scholarly work. This will allow the applied literature to improve the content and direction of policy. For example, one danger with a pragmatic turn is that this may breed a fatalistic view that policy-makers should be confined only to improve the details of existing (and possibly flawed) policies rather than trying to seek alternatives or different policies. Scholarly research can help policy work sift through different policies and highlight whether there are specific areas that ought to be developed further and others that ought to be challenged. Reflecting upon theoretical controversies might also build wider support for particular policies because this would directly address the arguments of the critics of those policies.

For example, the applied literature might draw on scholarly work on a ‘great risk shift’ embedded within pension reforms. Hacker (Reference Hacker2008) argues that the great risk shift involves moving people from a system where there is collective funding and provision of state pensions to one in which people have to save into defined contribution schemes that are provided by the private sector. The size of the final pension pot in defined contribution schemes depend on the individual contributions and the performance of the pension investments over the term of the pension. Different investment strategies have different risks and returns and moving people from state pensions to defined contribution schemes involve exposing people to the risks associated with financial markets.

Rises in the state pension funded through collective taxation is an alternative to encouraging people to save more within defined contribution pension schemes. The state pension shares the risks of retirement throughout society and may be better placed than private schemes to guarantee financial security in retirement.

The recent applied literature considers pension reforms but devotes most of its energies to those policies that encourage private saving (Financial Inclusion Commission, 2015; House of Lords Select Committee on Financial Exclusion, 2017). For example, the Financial Inclusion Commission (2015) considers initiatives such as the automatic enrolment into a workplace pension and new pension freedoms that focus on the decumulation of defined contribution pension pots. Similarly, the House of Lords Select Committee on Financial Exclusion (2017) calls for an extension of automatic enrolment to other savings products. Neither report discusses rises in the state pension as an alternative to more private saving for retirement. This limits the policy options on offer. Engaging with scholarly work would allow the applied literature to develop a richer range of policy ideas.

Even if the applied literature confines its attention to reforms such as automatic enrolment, it would still benefit from engaging with scholarly work. Scholars have pointed out that there is an important gender inequality embedded within automatic enrolment (Ginn and MacIntyre, Reference Ginn and MacIntyre2013; Grady, Reference Grady2015; Foster, Reference Foster2017). Women face a gender pay gap as they have less income than men, because they are more likely to have to undertake part-time work to fulfil unpaid caring responsibilities. Eurostat data from 2012 show that the average gross hourly earnings of women were about 19.1% less than men in the UK (European Commission, 2014). This means though that women are more likely than men then to fall below the lower earnings threshold for automatic enrolment. Neither the Financial Inclusion Commission (2015) nor the House of Lords Select Committee on Financial Exclusion (2017) discuss gender and automatic enrolment. These recent reports would have benefited from engaging with this work on gender when making their recommendations on automatic enrolment.

Conversely, the theoretical literature would benefit from engaging with the applied literature and its discussion of different policy choices. The policy literature highlights the sheer variety of financial inclusion policies and the ways in which financial inclusion policies might be designed in different ways. Engaging with the applied literature would allow scholarly work to refine their theoretical approaches and develop a more nuanced analysis of financial inclusion.

For example, the scholarly literature shows how financial capability can be used to deepen neoliberalism. Important parts of the FSA's (2006) initial financial capability strategy was arguably used to support neoliberalism. Choosing products, keeping track of finances and staying informed all seem important for creating informed consumers within markets. However, the applied literature is valuable because it highlights that financial capability can be designed in different ways. Financial capability is evolving in the UK. Much greater emphasis is now placed on using financial capability to support financial resilience. The MAS published a revised national financial capability strategy that says that:

The financial capability strategy has been revised to concentrate on several main themes: managing money well day to day, preparing for life events and dealing with financial difficulties (Money Advice Service, 2015a, 2015b). This version of financial capability is now much less about helping people become informed consumers and is now much more about supporting them to cope with financial distress, a response in part perhaps to post-2007 austerity measures that have reduced the availability of welfare state safety nets. Engaging with the policy literature would allow the theoretical literature to acknowledge that financial capability policies do not always have to lead to an investor-subject approach and enable it to fashion a more nuanced analysis of the financialisation of the everyday.