Understanding Financial Exclusion: A deep dive into Vulnerable Groups

Financial Inclusion for Scotland (FIFS) welcomes a recent segmentation analysis by Fair4All Finance, in collaboration with CACI and Trajectory, that sheds light on the various groups currently experiencing financial vulnerability.

This segmentation has been updated from the original analysis in 2022 to reflect the impacts of the cost-of-living crisis and other global events. It provides a shared understanding of the consumer groups impacted and a consistent view on which to base strategies and initiatives across the UK.  This blog explores these segments, the statistics highlighting the extent of financial exclusion in Scotland and what happens next.

By grouping individuals with similar needs and characteristics we can better understand and address their specific challenges. Segmentation is crucial in terms of improved policymaking, delivering targeted interventions for those with distinct financial challenges, with the option to offer personalised financial products and services, as well as the ability to monitor and evaluate the impact of financial inclusion initiatives.

Following UK-wide research, Fair4All Finance’s segmentation model identifies six key segments of financial vulnerability, each with unique characteristics and needs.

The six segments of financial vulnerability are:

1. Difficult Debts
• Characteristics: Individuals with reasonable incomes but high levels of debt.
• Statistics: 3.5 million people fall into this category, struggling to manage their debt despite having a stable income.
• This segment experienced the biggest growth between 2022 and 2023, from 2.1 million to 3.5 million people. They often have very high debt levels (average £7k), from multiple lenders, and some missing payments. About 24% have no savings, and 26% have savings between £1-£1,000.
2. (Un)golden Years
• Characteristics: Older adults with low but stable incomes, both pre-and post-retirement.
• Statistics: 2.8 million people, often face financial challenges as they transition into retirement.
• This segment saw a decrease from 3.1 million in 2022. They have an average debt of £6k, with 37% having no savings and 21% having savings between £1-£1,000. A significant portion (17%) lacks any form of insurance.
3. Squeezed and Sliding
• Characteristics: Individuals getting by but increasingly squeezed financially, including both renters and homeowners.
• Statistics: The largest segment, with 4.5 million people, highlights the growing pressure on middle-income earners.
• This segment grew from 3.9 million in 2022. They have higher than average debt (£7k) and increased debt levels in the last year. About 20% have no savings, and 31% have savings between £1-£1,000.
4. Unsteady Starters
• Characteristics: Young adults with flexible incomes and jobs, primarily renters.
• Statistics: 1.9 million people, often facing instability in both employment and housing.
• This segment grew from 1.3 million in 2022. They are likely to have multiple but lower than average debts (£5k). About 19% have no savings, and 35% have savings between £1-£1,000. A significant portion (22%) lacks any form of insurance.
5. Forgotten Families
• Characteristics: Families with the lowest incomes, no savings, and minimal access to financial products.
• Statistics: 3.8 million people, representing some of the most financially excluded individuals.
• This segment grew slightly from 3.6 million in 2022. They have lower than average debt (£5k), with 47% having no savings and 27% having savings between £1-£1,000. About 33% lack any form of insurance.
6. Credit Crisis Families
• Characteristics: Low-income families in social housing, caught in a cycle of credit and debt.
• Statistics: 3.9 million people, frequently relying on credit to make ends meet.
• This segment grew from 3.5 million in 2022. They have lower than average debt (£4k), with 39% having no savings and 36% having savings between £1-£1,000. A significant portion (39%) lacks any form of insurance.

• Food Bank Usage: Food bank usage has increased across all segments, with the most vulnerable segments showing the highest rates. For example, 24% of the “Forgotten Families” segment reported using a food bank in the last 12 months.
• Lack of Savings: A significant number of people in financially vulnerable circumstances have no savings. In the “Forgotten Families” segment, 47% have no savings at all, making them highly susceptible to financial shocks.
• Access to Credit: Access to credit is imbalanced, with many in financially vulnerable circumstances being declined for credit. For instance, 32% of “Credit Crisis Families” have been turned down for credit, compared to the 22% segment average.

According to the research, Scotland has a notably higher proportion of financially vulnerable individuals. Specific areas such as West Dunbartonshire (53%) and Glasgow City (50%) have some of the highest rates of financial vulnerability in the UK. This regional analysis underscores the need for targeted interventions to support these communities.

In order to provide this focus FIFS set out its’ two-year strategy earlier this year, calling on the Scottish Government to prioritise the allocation of dormant assets towards combating financial exclusion across Scotland. The expansion of the scheme presents an opportunity to direct a proportion of these assets towards financial inclusion initiatives. Central to our proposals is the establishment of a £20 million 'First Loss Fund' which would be instrumental in bolstering community lenders and expanding the availability of affordable credit. However, FIFS fears that spending controls issued by the Scottish Government on the back of the change of UK Government in July will adversely impact those experiencing financial exclusion in Scotland. Our concern is that those reliant on social welfare programmes, housing support, and community services will be impacted by more economic uncertainty, tipping more Scots into poverty and making it harder for those segments that are already struggling to improve their financial situation.

We are urgently calling on policymakers, financial institutions and community organisations to support our key aims and to get in touch to discuss actions to build a more financially resilient Scotland.