COVID-19 has exacerbated financial exclusion, with 28% of Brits saying their financial situation has worsened since the pandemic began, 36% not feeling prepared to pay for an unexpected emergency, and ethnic minorities feeling shut out from financial services.
These findings come from London-based ethical lender Plend, which has published its first Financial Inclusion Report, created in collaboration with Nationwide Building Society, Nationwide Incubator, Responsible Finance and StepChange, to highlight the crisis of financial exclusion in the UK and identify those most at risk.
In the current climate where inflation is rife, some 16 million UK adults said they would need to borrow money to meet an unexpected payment of £300 in the next 12 months. Furthermore, 1 in 5 Brits feel excluded from the financial system generally.
The report also reveals that one in three British adults could find it difficult to get credit from traditional lenders. This means that 20.2 million adults in the UK are now defined as financially underserved. This represents a 50% increase since 2016.
While access to affordable credit is vital to an individual’s financial stability, the report’s findings reveal that certain sections of the UK population are regularly left behind by the financial services sector; 38% of people from a Black ethnic group and 32% from all ethnic groups combined feel they cannot access financial services.
Gender and ethnic disparities
Without equitable access to financial products inequality is set to worsen during the current cost of living crisis, with many likely to become even more dependent on unreliable financial support.
Loans are the form of credit that people find most difficult to repay, with 50% (4.7 million people in the general population) saying they have found it difficult to do so, compared to 37% of Buy Now Pay Later (BNPL) users and 38% of credit card holders.
People from an ethnic minority group also performed poorly compared to the national average here, with 69% having difficulty repaying. The report’s data also reveals that almost half (47%) of those with high-cost loans only make the minimum payments each month, and 10% are unable to manage the minimum payments.
In addition to the ethnic divide, Plend’s report, written by Alice Tapper, a financial activist and Plend advisor, also highlights the economic disparities between men and women.
While 62% of those surveyed use some form of credit, the average amount borrowed through a loan is £8,200, with men borrowing significantly higher amounts (£9,952.32) than women (£6,346.57). In addition, single women feel much less able to access credit than women in couples.
Lack of understanding
Overall, the report reveals a lack of understanding of financial services. Problems of financial exclusion are compounded by a limited understanding of the UK credit rating system. The report states that only 41% of adults know their credit score and 60% say they do not know how credit scores are calculated.
Rob Pasco, CEO and co-founder of Plend said: “It is shocking that financial discrimination and exclusion is on the rise, which is having a detrimental effect on society as a whole and widening the poverty gap. Having a poor or invisible credit record is just one reason why many people are financially excluded from accessing affordable credit products and basic financial services – the credit industry has failed to address this at a time when the need has never been greater due to the cost of living crisis.”
Richard Lane, Director of External Affairs at StepChange, added: “The credit information system is failing to keep millions of people off unsustainable harmful credit, can discourage people from accessing support and can encourage people to borrow more (including high-cost credit) which can make debt problems more harmful in the end.”
Andrew Jackson, Chief Credit Officer, Nationwide Building Society, said: “Today’s lifestyles generally demand quick and easy access to products and services, and this applies as much to credit products as anything else. The rising cost of living is putting pressure on households and making credit less affordable. It is the responsibility of lenders to find the right balance, meeting consumers’ needs in a sustainable way”.
In this article, you learned that:
- COVID-19 has exacerbated financial exclusion, with over a quarter (28%) of Brits saying their financial situation has worsened since the pandemic began.
- Half of people with a loan have found it a struggle to pay it off.
- As many as 32% of people from ethnic minority groups feel excluded from financial services.