Nic Murray, Research Officer, Money and Mental Health
Can you imagine life without a bank account? How would you get paid? Pay your bills? Manage your money? For 1.7 million people in the UK, this is their experience, living on the margins of the mainstream financial system, unable, or unwilling, to enter. A further 8 million people are unable to access mainstream credit, left with the products that can charge exorbitant interest rates, knowing their market is people who don’t have a choice.
These are just a couple of examples of financial exclusion: where people lack access to, and use of, a range of financial services that make life more manageable and more affordable. In light of these figures the House of Lords set up a committee to examine financial exclusion, which reported its findings last weekend. At Money and Mental Health we welcome that report, which called for the Government, FCA and banks to do more to tackle the problem.
Mental health and financial exclusion
During the committee’s enquiry, our director Polly Mackenzie and chair Martin Lewis were invited to the House of Lords to give evidence, and made a strong case for ensuring that the needs of people with mental health problems were included in any recommendations stemming from the committee’s investigation.
A number of circumstances may lead people to become financially excluded; they may be unable to get access to the services they want due to a poor credit rating or lack of ID, or they may self-exclude after a bad experience, for example finding it too hard to avoid fees and charges. Of the 1.7 million people currently without a bank account, half previously had one. It’s clear that something is going wrong when 850,000 people have such a poor experience of financial services that they leave entirely.
During a period of poor mental health it can be more difficult to carry out day-to-day financial tasks like budgeting, controlling spending and planning ahead. This can mean that people with mental health problems may be particularly vulnerable when navigating their financial environment. When struggling with budgeting, people may miss payments or face fees for unarranged overdrafts. Impulsive decision making can also mean people increase their spending or take out new forms of credit without considering the long term consequences.
“I had a period of mania in 2012-2013 and got into over £10k worth of debt… It was all a horrendous experience but the aftermath is worse. Although many debtors have written off the debt my credit rating is shot to pieces and I can’t even get a current account in my own name!”
A period of poor mental health can have a long lasting impact on a person’s finances, leaving them with depleted savings, in problem debt or with a damaged credit rating. All of this can contribute to financial exclusion or can lead people to self-exclude, wanting to avoid similar difficulties in future.
“I no longer have credit cards and will cancel my overdraft once it has been paid off. Although this can make things awkward at times I can’t trust myself to be able to make good financial decisions when I’m ill.”
The Lords committee’s vision for change
We are delighted to see how many of our recommendations have been picked up by the committee. While we welcome the whole report, there are three recommendations in particular that will be helpful for those with mental health problems:
- The Government should abolish the seven-day wait before a claimant becomes entitled to Universal Credit, and also that it should allow more flexibility about whether payments are made monthly or more frequently.
- The Government, the FCA and the British Bankers Association should carry out a review of reasonable adjustments for disabled customers, including those with mental health problems, and publish that review within 18 months.
- Restrictions should be introduced by the FCA to control forms of high-cost credit such as ‘rent to own’ products and unarranged overdraft fees.
We have made the case for all three of these changes, and believe that they would make a significant difference to many people living with mental health problems and struggling to avoid financial difficulty.
Ending the vicious cycle
We believe that simple adjustments can significantly improve financial services for people with mental health problems, helping to tackle the links between these and financial difficulty, and in turn, financial exclusion. We would like to see the Government accept the recommendations of the committee, including carrying out a review of reasonable adjustments for disabled customers. People with mental health problems should not be left to a life on the margins of mainstream financial services, it’s time we designed banking products that work for everyone.