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Financial Services Marketing to C1C2DEs Market Assessment 2002
Key Note Publications Ltd, Oct 2002
In this report, we review trends in financial services aimed at middle- and low-income people in the UK - the skilled, semi-skilled and unskilled workers, and people relying on state benefits (the CDEs) - and explores their current attitudes towards money and providers of financial services.
There are more skilled non-manual women than in any other category, and more men in intermediate than in skilled manual jobs. However, occupational classifications are opaque at best. The CDEs (the skilled, semi-skilled and unskilled workers and people on state benefits) tend to have an early start to earning. The men work a lot of overtime, and women lose out on promotion opportunities because of family responsibilities. Benefit rules discourage people on low incomes from trying to amass capital because of the small amounts they are allowed to keep if they do need state help. Opportunities for selling more financial services to middle- and lower-income groups lie particularly in secured and unsecured credit, low-risk savings, stakeholder pensions for middle earners, life insurance and equity release. Barriers include ignorance of, and indifference to, personal finance.
There are large income differentials between men and women, between working and non-working households, and between families with children and those without. We review how incomes change with age. The unskilled saw their disposable incomes fall in 2000/2001. Skilled manual workers saw barely any rise in their household income. Saving is of dubious value for most low-income households and for many middle-income households. As at the start of April 2000, more than a quarter of all households in Great Britain had no savings at all, and nearly a quarter more had less than £1,500. Pensioner households are generally not income-rich but have more assets than average. The distribution of wealth was remarkably stable between 1976 and the mid-1990s, but between 1997 and 2001, the wealthiest profited at the expense of the poorest half of the population, who hold little marketable wealth.
There is little difference between the amounts households save and the amounts going to repay loans. The households in the lowest 10% by income spent very little on financial services in 2000/2001. The second and third deciles also had low spending. For the fourth, fifth and sixth deciles, there was only a marginal difference between savings and investments and payments for debt repayment loans. The boom in credit is clear from a rise of over a third in net lending between 1999 and 2001. The amount outstanding in loans to individuals is over 20 times greater than gross annual household saving. Catalogue finance, though, should remain an effective way of drawing in and retaining women customers for financial services. Credit unions have potential for reducing financial exclusion that has been under used in the UK.
Consumer research carried out for this report suggests that customers are moderately (but not overwhelmingly) happy with the service they receive from financial-services companies, and moderately (but not overwhelmingly) keen on leaving financial assets to their children or other relatives. Alarmingly, more than one skilled non-manual worker in eight says that, excluding a mortgage to buy their home, they owe more than they have in savings. The figures point to the fact that people who are offered credit, use it. In general, people place buying luxuries above saving, but many feel guilty when they do spend. However, the survey indicates that people are taking pensions more seriously than they were in 2001 - people have subscribed to stakeholder pensions in larger numbers than seemed likely before their launch.
The exclusion from affordable - or any - insurance cover of the customers most likely to claim is a particular issue for those on average and below-average incomes. In addition, the extent of credit and indebtedness means it is difficult for many people on middle and low incomes to find money to save. We argue that the private sector should not be asked to double as a financial welfare service and say that it will not be possible for the private sector to deliver all the financial security that people want. Mutual and not-for-profit organisations are better placed than commercial companies to provide financial services for people on middling and low incomes, because they have no shareholders to satisfy. However, the approximate 20 banks with basic accounts available through post offices have a good starting point of building relationships with customers, and the nation's post offices are probably the best locations for banks and insurers to promote good-value products to lower-income customers.
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