Thursday, 25 March 2010
Basic bank accounts to solve the personal finance crisis?
It’s safe to say that the Government’s Budget announcement that banks will be forced to provide basic bank accounts to everyone is a Good Thing. The Labour Government has already halved the number of people without a bank account, which, as Darling pointed out, is a useful tool for people’s personal finances. From buying a holiday to getting wages paid in, a bank account certainly comes in handy.
But is access to a bank account the critical personal finance issue of our times? Measures to increase financial education and improve access to financial products and services have been a major feature of efforts to tackle poverty and debt in recent years.
In fact, before the banking crash in 2007, the light touch regulation of banks was paralleled by increasing focus on the ability of individuals to manage their finances. Concern about the extraordinary rise in personal debt focused almost entirely on poor people: those with the smallest levels of debt but most associated with ‘problem debt’.
But, as ippr’s recent report Strength Against Shocks showed, people rarely get into financial difficulty because of ‘bad’ financial management. Poverty, sickness and unemployment are by far the biggest drivers of over-indebtedness.
The disparity between low pay structures and consumer-driven growth is an integral part of the story of debt in low income households. Successive governments have encouraged and supported our cultural obsessions with consumer comforts and home-ownership. But while Britain remains one of the most unequal countries in the developed world, many people on low incomes can only keep up with the Joneses – and the rising cost of living – by taking on debt.
Banks, as we know, have been only too happy to oblige, offering no-income-no-job-no-assets loans and mortgages. Low income families that took part in our research had been inundated with calls, letters and visits from loan companies urging them to manage their poverty through debt.
Financial products simply offer practical ways for poor people to manage limited resources, and access to basic bank accounts barely grazes the surface of Britain’s personal finance crisis. A radical pre-election pledge this is not.
Tess Lanning, researcher, ippr