Welcome to the first edition of “Research Round-Up”, where we summarise some of the reports and academic papers the team has been reading and discussing recently. Please email hanadi@fair4allfinance.org.uk with any newly published reports or papers that you want us to consider for the next one!

Recently published reports

Data Protecting: using financial data to support customers

Money and Mental Health Policy Institute, October 2019

The report examines how financial service providers can use financial data to provide customers with timely support based on signs of potential vulnerability. For example, the report illustrates that mental health conditions make it difficult for individuals to keep track of their spending—therefore, banks can alert customers when they are spending more than usual and provide them with information about budgeting tools. The authors also note that there is high support from multiple stakeholders (including individuals with mental health conditions) for using financial data to indicate vulnerability. However, following engagement with financial service providers, the authors highlight various obstacles preventing financial institutions from using transaction data to proactively support customers. These challenges include (1) data protection; (2) technical limitations; (3) managing customer expectations; and (4) regulatory and liability risks. To combat these challenges, researchers developed a set of “Practical Best Practices” (Section 2) for institutions. These best practices emphasise that individuals should have the choice to opt-out of these services or select the types of services they are interested in. Read the full report >>

Life happens: Financial resilience in a world of uncertainty

StepChange Debt Charity, July 2019

This briefing is only the first part of a larger project the StepChange is currently working on.

The briefing analyses the financial resilience gap—i.e. what situations trigger people’s spiral of financial difficulties and why so many people fall into problem debt as a result. In 2018, seven in every ten StepChange clients stated that the primary reason they fell into problem debt was because of a life event or shock. In addition, the research finds that people with higher incomes are more likely to rely on credit to cope with these shocks, and only 15 per cent applied for state benefits following the event. This concludes that unexpected life events trigger most debt problems, however, only a minority of people use state support to cope. Next steps are to understand more about people’s experiences and the role for universal services to prevent problem debt. Read the full report >>

More than just credit: the experience of credit unions building financial resilience in communities

Just Finance Foundation, October 2019

The report outlines the “experiences” of a sample of four credit unions and four community finance initiatives providing affordable credit services in the UK. Particularly, the authors highlight the role credit unions play in their communities, the impact of credit unions on these communities, and the overall challenges they face. The challenges highlighted include:  (1) a lack of public awareness about credit unions and what they do; (2) pressures to make use of technology to meet modern consumer needs; (3) regulatory requirements (i.e. capital requirements); (4) a demographic imbalance (credit unions are struggling to meet regulatory requirements because of difficulties in diversifying their membership); and (5) considerable fragmentation and general lack of working together with other credit unions. The report finds that credit unions are a valuable source of alternative, fair, and affordable credit, and also provide a space for individuals to build longer-term financial resilience. Moreover, the report highlights that the strength of these institutions rests in their ability to provide a broad and holistic set of services. Read the full report >>

Measuring Household Financial Resilience: the report of the financial resilience task force

The Resilience Taskforce in collaboration with the Money and Pensions Service (MAPS), October 2019

The report explores the impact of financial shocks on households in the UK. It states that each year, four to six million people experience an income shock from life events such as sickness, job loss, relationship breakdown, bereavement, or caring responsibilities. In addition, the report finds that 73 per cent of those in regular work face income instability, signifying that it is not just low earners that are at risk. The report indicates that this low financial resilience can lead to problem debt, mental health conditions, and difficulties for families. In order to combat these issues, the Resilience Task Force endorses the development of a Financial Resilience Index that would:

• Map the level of resilience in UK households;
• Allow changes in resilience to be tracked;
• Highlight segments of our society where action is most needed to improve resilience;
• Improve understanding of the underlying causes and drivers of low resilience;
• Be a useful tool for all organisations and agencies seeking to improve financial resilience;
• Provide a benchmark against which proposed policies or actions could be tested so that unintended impacts can be identified in advance.

Moreover, to provide a buffer against income and expenditure shocks, the report states that employment benefits (e.g. sick pay), state benefits, private insurance, savings, affordable credit, and help from family and friends can be used to increase resilience to these shocks. Read the full report >>

Published academic papers 

Payday loans & household spending: How access to payday lending shapes the racial consumption gap.

Raphael Charron-Chénier

Social Science Research, 76, 40-54, August 2018

The paper seeks to understand if Black households in the United States use payday loans to alleviate a gap between their ability to spend and their core needs. It is well-established in the literature that Black households have lower spending levels than White households in the US, for both essential and non-essential spending. This implies that Black households experience deprivations in access to basic goods and services relative to socioeconomically similar White households. Researchers find that Black households with access to payday loans are able to increase their consumption levels relative to White households—narrowing the racial spending gap. This suggests the main alternative to payday lending is forgoing some consumption; therefore, rather than eliminating current predatory options, the researchers advocate for policy initiatives that increase access to high-quality small loan products for groups who are not well-served by traditional financial institutions. Read the full paper (£) >>