Foundation welcomes proposed funding for Money Guidance

NEWS RELEASE

FOUNDATION WELCOMES PROPOSED FUNDING FOR MONEY
GUIDANCE

The Resolution Foundation welcomes the extension of the Financial Services Authority levy to pay for the national roll out of Money Guidance. The Foundation has been working since 2005 to improve low earners access to financial advice. The Financial Services White Paperi, published yesterday, announced that the Money Guidance service will be funded through dormant bank accounts and by extending the FSA levy to include consumer credit firms.

Sue Regan, Chief Executive of the Foundation said:

“This is another positive step towards the national roll out of a money guidance service next year. It is fair that Financial Services companies contribute to the cost of a national advice service, and that this cost is shared fairly across the full range of companies. The current recession highlights more than ever the need for a service to help people make sound financial decisions. I hope to see a national roll out as early as feasible in 2010”.

In 2005, the Resolution Foundation identified that the 9.1 million low earners of working age and 4.4 million low earners in retirement, fell into an ‘advice gap’. The Foundation developed proposals for a national generic financial advice service. This work led to Ed Balls MP, then Chief Secretary at HM Treasury, establishing the Thoresen Review which recommended in March 2008 that a Money Guidance service be set up. Pathfinders were launched earlier this year in the North East and North West and the 2009 Budget announced the service should be
rolled out nationally from 2010. The Foundation’s research demonstrated that if low earners made sounder financial decisions they could be £60,000 better off by the age of 60. However, the ‘advice gap’ meant low earners
went without the advice that could help them achieve this – commercial advisers focused their attention on those better off, whilst the third sector and government focused on the most vulnerable.

A poll conducted by the Resolution Foundation in March found that:

• nearly 3 million low earners now worry ‘all the time’ about their personal finances – this is double the number in 2007 (the same poll was carried out for the Foundation in 2007).ii
• in 2007, only 1 in 10 low earners worried ‘all the time’, compared to nearly 1 in 5 today.iii

There are 13.4 million low earners in the UK – people who live on annual household incomes of between £12,000 and £27,000.iv

The two polls also found amongst the general public that:

•  in 2007, 45% of respondents said that they would go to a bank and building society for
financial advice compared to only 29% today
• in 2007, 32% of respondents said that they would use an Independent Financial Adviser
as a source of advice compared to only 20% today
• today, 45% of people still rely on friends and family for their financial advice (a similar
figure to two years ago) rather than trained financial advisers

This makes it even more important that low earners have a source of impartial, free, information and advice to help them manage their money and avoid getting into financial trouble.

Why low earners?

‘Low earners’ is the term the Foundation uses for the group of people who are ‘too rich’ to qualify for state support yet often ‘too poor’ to access the benefits of private markets. The Foundation published Squeezed: the Low Earners’ Audit in March which puts low earners’ precarious position under the spotlight – please see our website for further information.

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For further information please contact Cara Brown on 020 7731 9143 / 07957 536758

All the Foundation’s research, reports, briefings, seminar notes are available on our website www.resolutionfoundation.org

Notes to editor:
i The Financial Services White Paper was published on Wednesday 8 July 2009. Section 8.9 references
the Money Guidance Service.

ii In 2007 8% of low earners polled said that they worried about their personal finances ‘all the time’
compared to 20% today. The 2007 poll was also carried out by YouGov. The sample size for the survey
was 2,010 adults. Fieldwork was undertaken from 25-27 July 2007. The survey was carried out online.
The results have been weighted and are representative of all GB adults (aged 18+).

iii 19% of Low Earners polled said that they worried ‘all the time’ about their personal finances. The
YouGov Poll was carried out from the 20-23 March 2009 with a sample size of 2,049. To ascertain the
low earner statistics we use the income brackets of gross annual income in a household between
£13,000 – £23,999. This does exclude some low earners but does include the core of our group. Higher
earners are those in the top two income brackets earning between £32,000 and over a year.

iv Squeezed: the low earners’ audit shows that we define the low earner group as including all those with
below-median income (from all sources) who are not dependent on state support. For the purposes of
analysis there are a number of different ways of capturing this group and this note uses a variety of
methods, depending on the data available in the underlying sources.

• At its simplest, we consider the group to be made up of households in income deciles 3, 4
and 5: that is, with gross annual income between £11,650 and £27,150.
• Around 7.6 million households fall into this category in the UK, equivalent to around 13.4
million adults.
• We define two other income groups in relation to low earners: households with above-median
incomes (income deciles 6-10) are considered high earners, while those with below £11,650
income (deciles 1 and 2) are considered benefit-dependent.
• This definition inevitably excludes some low earners (those in income deciles 1 & 2 who are
not benefit-dependent and those living in high earner households who are individual low
earners) and includes some benefit-dependent individuals. However, it provides a reasonable
picture of the position faced by the majority of low earners.