One in seven Australian adults are either fully or severely excluded from accessing basic financial services, according to the largest and most detailed examination of financial exclusion in Australia.
The research, called ‘Measuring Financial Exclusion in Australia’, reports that 17.2% of the adult population, nearly three million Australians, are either fully or severely financially excluded from affordable and appropriate financial services.
The figure is up from 15.6% last year, with young adult Australians and those living in low-income outer suburban areas, reported as some of the most vulnerable to financial exclusion.
The research study, now in to its second year, was conducted by The Centre for Social Impact (CSI) and funded by National Australia Bank (NAB).
“This year we examined the uses of credit, the geographic spread of financial exclusion and the experiences of Indigenous consumers,” says CSI Director of Research, Les Hems.
“Most Australians take everyday financial products and services like bank accounts, general insurance and access to credit for granted. However, the cost of financial services for many in Australia is a significant barrier to financial inclusion,” Mr Hems says.
The cost of basic financial services
The average annual cost of basic financial services in Australia is $1,740, which includes a basic bank account, low cost credit card, and basic vehicle and home contents insurance, according to the report.
“These costs may appear moderate, but for about 12% of the adult population this represents more than 15% of their income,” he said.
The study is based on data provided by the Roy Morgan Single Source Survey, consisting of over 50,000 interviews per annum, access to the unidentified banking records of several million NAB customers, and supplemented with a telephone survey to over 600 hundred people considered financially excluded.
“Worryingly, many marginalised Australians reported a need for credit to meet every day living expenses such as food, rent and utility bills,” he said.
“Unable to afford mainstream credit they turn to alternative credit providers that charge extraordinary interest on the funds they provide and ultimately compound the problem.”
Demographics
The report also identifies a number of demographic indicators that result in people being more likely to be excluded.
“Being aged 18 to 24 has a high correlation with overall financial exclusion, and being born outside Australia has a high correlation with exclusion from general insurance,” Mr Hems said.
“Regions with high rates of financial exclusion tended to be either low income suburbs, inner-city areas of major capital cities, or large rural and remote areas.”
Indigenous consumers
“Although the sample size was small, data about Indigenous consumers using financial services is relatively light. We found significant differences between financial exclusion of Indigenous and non-Indigenous consumers,” he says.
43.1% of Aboriginal or Torres Straight Islanders surveyed were considered financially excluded. Indigenous consumers were over-represented compared to the combined national average of 17.2%, according to the report.
The survey also identified number of other difficulties in accessing financial services. These included providing identity documents, and communication and literacy challenges when trying to open a basic bank account.
Head of Community Finance and Development at NAB, Corinne Proske, says the research is crucial in the search for financial solutions that legitimately help all sections of the community.
“In a country that is generally considered to have survived the GFC, it is simply unacceptable that nearly three million Australians are financially excluded from affordable financial services,” Ms Proske said.
Ms Proske is responsible for NAB’s $130 million microfinance programs, which focus on helping low-income Australian’s access financial services.
“Financial inclusion has obvious social and economic benefits encouraging functional families, employment and reduced welfare and health costs,” she says.
Stakeholder engagement
“We need to continue exploring alternatives so that all Australians have access to fair and affordable financial products and services. However, the key issues can only be addressed with sustained commitments from government, community organisations and business.”
Gerard Brody, Director of Policy & Campaigns at Consumer Action Law Centre, says access to mainstream interest rates and credit products for financially excluded Australians should be the ultimate aim.
“The debate about financial exclusion seems to presuppose that access to any financial product will alleviate our financial inclusion problems, and that efforts to restrict access to harmful products like payday loans will exacerbate financial exclusion,” Mr Brody says.
“Leaving low income Australians to rely on credit products, which keep them in financial hardship and, indeed, exacerbate financial hardship, only works to take them further away from accessing more appropriate forms of credit and other financial products.
“We want to see the financially vulnerable being able to access products that can help them escape poverty, not expensive loans that help reinforce it,” he says.
“That means access to products beyond credit—savings products and insurance. Products that, when used responsibly, can help improve the borrower’s circumstances.”