The exacerbation of global financial inequality is a growing concern. In the UK, it is evidenced by the 1.3% increase in the Gini coefficient between 2021/2022.
In light of this issue, it is pertinent to explore the potential solutions to this socioeconomic challenge.
On 7 March, AML Group hosted in conjunction with The Financial Services Forum a panel discussion regarding the role of financial services in mitigating the growing issue of financial inequality. The panel was chaired by Ian Henderson, CEO of AML Group alongside panellists Rebecca O'Connor, Founder & Director at Good With Money, Suzanne Homewood, Enterprise Sales Director at Moneyhub, and Catherine Carey, Head of Consumer Strategy at Consumer Intelligence.
The rising cost of living has exerted a substantial influence on financial decision-making, particularly for the most vulnerable areas of society. This was echoed by Catherine Carey who shared some concerning statistics: Consumer Intelligence found that 70% of people are impacted by the cost of living, and 60% have reduced their spending on essentials such as food and clothing. Meanwhile, 40% of people are delaying significant life events, such as marriage and having a baby, due to financial constraints.
The most worrying statistic showed that 8% of people are cutting back or terminating altogether their insurance on personal items, pets, and motorbikes, leaving them vulnerable to financial risk. In the event of an unforeseen incident such as theft or damage, the individual would be solely responsible for bearing the associated expenses. The costs related to these events can be substantial, and in the absence of insurance, may lead to financial hardship, and potentially insurmountable debt.
In addition, financial advisors are inclined to devote a considerable amount of their time to high net worth clients, with numerous private banking services necessitating a minimum of £100,000 to qualify for their services. In consonance with this, Suzanne Homewood underscored the potential of technology in enhancing financial decision-making, particularly for lower income individuals who may lack access to personal financial advisors. She emphasised the value of data and open banking in offering insights into personal spending habits, and their potential to empower consumers towards informed and favourable decisions regarding their financial futures.
When the panel was about to conclude, chair Ian Henderson asked the audience whether private businesses should prioritise social consciousness, or focus solely on maximising shareholder profits. While the audience provided diverse opinions on the matter, a consensus was reached regarding the critical role of governments and regulators. This led to a discussion on the FCA's new Consumer Duty principles.
The Consumer Duty introduces a new Consumer Principle, requiring firms to act and deliver good outcomes for customers. At Cowry Consulting, we’ve helped our financial service industry clients in aligning with these new upcoming regulations.
Financial services have a unique opportunity to make a difference in the lives of vulnerable customers, and to help build financial resilience amongst all consumers. Financial services can help to address inequality through their increased efforts to engage with vulnerable customers. Drawing upon insights from behavioural science, Cowry has helped clients from the financial services industry to communicate more effectively with vulnerable customers about the risks and rewards of financial products and services, providing tools and resources to help make informed financial decisions.
The rising global financial inequality is a complex problem that requires a multifaceted approach. Whilst financial services may not be able to solve the systemic issues that lead to such inequality, they have a unique opportunity to make a difference in the lives of vulnerable customers and to help build financial resilience for all.