Building sustainable tenancies: Understanding financial inclusion and exclusion
The gap between those who are financially excluded and included within our society is widening. Having a poor financial record can exclude you from certain services and benefits – as well as reasonably priced credit. Whilst for others, a rapidly digitising world can exclude them from the banking system as a whole. In this changing environment, housing providers are steering their strategy away from solely chasing arrears and towards becoming more involved with residents through the process of debt prevention and resolution.
The rollout of Universal Credit means that rental payments will no longer be sent directly to landlords. In theory this will encourage greater empowerment and financial responsibility for beneficiaries, yet it can also have the unintended consequences of allowing those tenants with skills gaps around money management to slip through the cracks. In order to maintain sustainable tenancies and secure income, it is becoming increasingly necessary for tenants to be equipped with the tools for budgeting. Like digital training, financial training is a way of empowering tenants, not only in matters of preventing rental arrears, but also across the wider scope of their lives, ensuring that they feel more in control of their finances. As a sector, we are leading the charge when it comes to debt prevention, with the Chartered Institute of Housing claiming that 60-80% of housing providers offer some version of debt prevention, early intervention or money advice services.
Engaging in training, incentives and early intervention can lead to better allocation of officer time, with fewer hours being spent on dealing with tenants in financial distress, as well as a lower rate of tenant abandonment, fewer evictions, a reduction in rent arrears and importantly, more stable, sustainable communities. For housing providers this means dedicating staff to pre-tenancy training and designing realistic budgets with residents, as well as more holistic topics which affect budgeting and finances, such as viability for the jobs market and digital skills training.
Financial exclusion is caused by a complex set of factors, a major strand of which is being entirely unbanked in an increasingly cashless society and the many consequences that result from this. It is estimated more than one million people in the UK don’t have access to a bank account, a problem that will only be exacerbated by the continued closure of bank branches and Post Offices. Identifying and assisting residents and community members that are unbanked is imperative to tackling financial exclusion. Those at most risk of being unbanked are older people – who may also need digital skills training – those new to the UK, or ex-offenders and first-time renters.
As those working in the social housing sector will know first-hand, the repercussions for tenants of not being financially literate can be disastrous. Instances, such as the arrival of an unexpectedly high bill or a loss of earnings can push low earners to the edges of their reserves, as many cannot rely on savings or cheap credit to cushion the cost. On top of this, those on low incomes tend to pay more for financial services and utilities if the options for direct debits are not open to them. This ‘poverty premium’ is estimated to cost individuals £1300 per year. Unmanageable debt is leading to a rise in over-indebtedness in the UK, which holds people in poverty, particularly in areas where housing costs are high and in demand; according to Money Advice Services, 17% of London’s population are over-indebted.
The government compelling banks to create Basic Bank Accounts has had a huge impact on helping people to access banking and manage their money without debt. From January 2016, the 10 largest providers of personal current accounts became legally obliged to offer fee-free current accounts. Between 2017 and 2018 over 7.5 million of these types of bank account were opened. The popularity of these services shows that the ability to manage money in a simple way, without access to debt or fees could really make an impact on budgeting decisions. Directing vulnerable residents, the unbanked or those with poor credit or financial planning history towards these types of services could greatly improve quality of life and ensure that rents are paid without borrowing cash or deepening financial woes.
“Financial Inclusion is where people have access to appropriate and affordable financial products and services, and have the skills and confidence to use them.”.Paul O’Connor, Financial Inclusion Advisor – England and Wales, Chartered Institute of Housing
In order to build a customer’s financial capabilities, London Community Credit Union has taken lessons from the disruption that mainstream banking has undergone in recent years due to the arrival of new banking models, such as Monzo and Revolut. The Credit Union has adopted a mobile banking model and allows customers to subdivide their account in ‘jam jars’. These jars visualise the balances into chosen categories, such as ‘rent’, ‘electricity’ or ‘parking’, so that truly disposable income is firmly marked. On top of this, the service prompts users when their bank balance is low and any money left out of ‘jars’ can be redirected as automatic savings.
Many local authorities and housing providers have a wide array of financial advice and debt counseling services, but the stigma around being in debt or financial difficulty can prevent those in most need from reaching out. Research has also shown that most people in the UK are unaware of the services and products that are available to them. In the UK, around 6 million people show signs of having debt management issues, yet less than 30% will seek advice and services. Promoting schemes and training across multiple channels is advised for housing providers to engage their residents if they want to secure long-term, reliable income.
For our part, one of the ways that we offer tenant and landlord support for those using our HomeSwapper mutual exchange platform, we provide a blog with helpful tips and advice. Over the past few months, we have been paying particular attention to explaining some of the financial offerings that could benefit social housing tenants, from Basic Bank Accounts to joining a Credit Union. We believe that residents should be exposed to this information as much as possible in order to empower them to find the solutions that work best for them.
A key finding from a report by the London Assembly found that there is a serious lack of data surrounding financial inclusion. Whilst government bodies and service providers agree that the issue has massive implications on people’s lives, it is hard to understand the scale of the problem at hand. Corroborating a potential tenant’s financial status to identify those in financial difficulties or with irregular financial histories can be established by completing thorough pre-tenancy checks, but for those already in your housing stock who are unbanked, the search may be harder. In the future we can look to the likelihood of locally-rooted mission-led banks and credit unions working in close partnerships with housing providers. Developing financial technology will enable our sector to link more closely with financial services, thereby building better communities with more financially confident and capable residents.