FIVE years ago, with all the passion and clarity of a man with a cause, the Archbishop of Canterbury called time on Wonga (News, 2 August 2013). His beef? A business model that leeched low-income households of vital income, and saddled them with a level of debt that they could not hope to repay.
But, while the battle of Wonga advanced — the company now has losses that mount each year — the Archbishop’s intervention served only to illuminate how deep and systemic financial exclusion and distress in the UK have become. A sense of mission might, it turned out, be enough to light a touch paper of action on this new social blight — but nothing less than a movement is needed to foster wholesale change.
The first thing to grasp about financial vulnerability is its scale. There have always been people who have struggled to make ends meet. The Financial Conduct Authority, however, in the largest ever survey of the nation’s financial lives, finds that 50 per cent of adults are at risk. Vulnerability means not being able to meet an increase in monthly outgoings of £50. Translated into real terms, we are talking about two or three bills that fall at once, or a change within the family — such as a child ‘sstarting a new school. In short, this is the stuff of life, and today it is beyond the reach of most of us.
At the same time, half of us have savings of less than £100. Are we too ready to spend when we want something, whether we have the funds or not? Undoubtedly. But, for a growing number, there is not enough to go round to conserve the funds to pay for essentials.
The financial crash of 2008 had a profound effect on the economy, going some way to explaining this wave of hardship. But the financial-services sector has particular characteristics that compound problems, too.
What drives low-income households into the clutches of high-cost lenders such as Wonga or Brighthouse is the need for small loans of a few hundred pounds. Banks do not offer them. Credit unions and responsible lenders such as Moneyline offer a fair alternative. With only two per cent of market share, however, they are minnows.
Credit-rating systems are not nuanced enough to distinguish those with insufficient evidence of credit-worthiness, or changed patterns, from those who present a genuine risk of default. Financial statements, products, and a poverty premium on pay-as-you-go services favoured by households on tight budgets do little to help them stay on top of cash-flow.
What is more, the British are singularly ill-prepared to confront new financial challenges. Neither do we seem much interested in our money: we get by, but two-thirds of us fail to plan for the future. Nor do we have the skills and confidence to make wise decisions. A recent study suggested that a quarter of adults could not accurately calculate change when shopping or take financial information from a simple graph. This places the UK in the bottom handful of developed economies when it comes to financial literacy.
INTO this mêlée, Archbishop Welby launched some disarmingly simple and effective programmes, husbanded by the Just Finance Foundation (News, 16 September 2016). One of them complements the efforts of money-advice agencies and the fair-finance providers in communities where disadvantage is high. To their efforts, it adds outreach. Given that five in six people who are over-indebted are too uncertain or ashamed to ask for help, the approach should be widespread.
Another programme, Lifesavers, tackles financial confidence at source. It teaches children in primary schools to develop their sense of values and appraise financial choices. With encouragement to embed new habits, children in the scheme have saved more than £60,000.
Everyone warms to LifeSavers. But it is artful, too; for research has confirmed that this is the age at which attitudes and patterns of behaviour take root. Financial education should be a part of every child’s experience. LifeSavers demonstrates how it can be woven into existing timetables without displacing other subjects in a busy curriculum.
SO MUCH, so good. But clearly, to these “mustard seeds”, other initiatives and the initiative of others are needed if we are to fashion an inclusive banking system suited to new realities.
The Church has a larger part to play. It starts at the top. Bishops and other church leaders can amplify and elaborate on the issues that the Archbishop has started to raise. They can invite churchpeople at all levels to discover what can be done, and to persist in mobilising responses suited to regional and local opportunities. The need for keeping financial inclusion in mind is constant.
They can encourage the adoption of proven models. Just Finance works holistically in three communities, partnering with dioceses, but strong local institutions are needed in many more. About 100 schools are delivering LifeSavers, of which half are Church of England schools, but the programme aspires to move from pilot scale to reach ten per cent of primaries over the next five years.
Other innovations are abundant. To take but two: St Andrew’s, Clubmoor, in Liverpool, exemplifies the part played by the church as a hub. It runs debt-advice clinics, but aims to expand to all aspects of money-management and to more than 30 other churches. The diocese of Rochester is the first to sign a loan-sharks charter, subscribing to a series of commitments and actions that even small churches and civic groups can undertake.
To this practical work, bishops can add debate. The voices calling for a different economic model have been coming thick and fast. They must be joined by stronger advocates for a financial system that enables people from all walks of life to flourish. As adherents of a values-based belief system, bishops can re-insert social purpose into capitalism and help derive better possibilities. Recent research from the Joseph Rowntree Foundation confirmed that the public trusted them more than anyone else to do so.
The scale of fair and affordable credit in the UK is a signal issue. Government ministers are warming to the theme, overseeing an injection of £55 million into financial inclusion. They are not yet, however, communicating a clear vision for the future of responsible finance and its place in an inclusive banking system. They need to, to galvanise change. The Church can embolden them.
Rowena Young is Executive Director of the Just Finance Foundation. justfinancefoundation.org.uk;
Read Andrew Brown’s press column on Wonga