Need for new financial advice service could not be more urgent as number of low earners worrying about their finances doubles

NEWS RELEASE

For immediate use: 14 April 2009

NEED FOR NEW FINANCIAL ADVICE SERVICE COULD NOT BE MORE URGENT AS NUMBER OF LOW EARNERS WORRYING ABOUT THEIR FINANCES DOUBLES

Foundation welcomes launch of Money Made Clear

A new poll conducted by the Resolution Foundation 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).[i] In 2007, only 1 in 10 low earners worried ‘all the time’, compared to 1 in 5 today. The poll also found that, today, nearly 90 per cent of low earners worry at least ‘sometimes’ about their personal finances.[ii]

There are 13.4 million low earners in the UK – people who live on annual household incomes of between 13,000 and 24,000.[iii]

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

These findings are published as the Money Made Clear Service is launched in the North-East and North-West.[iv] The service, which aims to provide ‘money guidance’ to help people with their finances, could not come at a more crucial time. The Foundation’s poll suggests confidence in the banking sector and in financial advisers has fallen since 2007. This makes it even more imperative that low earners have a source of impartial, free, information and advice to help them manage their money and avoid getting into financial trouble.

The Foundation’s previous research has shown that greater access to financial advice could leave young low earners £60,000 better off by the time they reach 60, deliver welfare savings of £100 million within 10 years and provide long term benefits to the financial services industry.[v]

Sue Regan, Chief Executive of the Resolution Foundation, said:

“With 1 in 5 low earners saying they worry ‘all the time’ about their personal finances, the Foundation is delighted to see the launch of the Money Made Clear pathfinders. Our research has revealed low earners fall into an ‘advice gap’ – not attractive to commercial providers of advice nor receiving support from existing voluntary sector provision. The Money Made Clear service will help low earners stay in control of money and avoid getting into financial difficulty.”

“It is clear that no time can be wasted in rolling out a full national Money Made Clear service, so that all low earners across the country can benefit from free and impartial advice.”

The Foundation began working on financial advice in 2005. Having discovered an ‘advice gap’ for 9.1 million low earners of working age and a further 4.4 million low earners in retirement, the Foundation then developed proposals for a national generic financial advice service. This work led to HM Treasury’s Thoresen Review which recommended in March 2008 that a Money Guidance service be set up. The Treasury then announced the pathfinders which are being launched today backed by £12 million from the Treasury and the FSA.

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. Low earners are ‘squeezed’ in the mixed economy and are a group whose needs are often overlooked. For example, the financial services industry typically packages up advice with product sales or offers it at commercial rates via independent advisers, while government or third sector schemes are aimed at socially excluded and the most vulnerable groups in society. Low earners’ advice needs are therefore largely unmet.

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

[i] 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+).

Notes to editor:

[ii] 87% of Low Earners polled said that they worried, ‘all the time’, ‘often’ or ‘sometimes’ 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.

[iii] 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.

[iv] The Money Made Clear Service is available online http://www.moneymadeclear.fsa.gov.uk/ or by calling 0300 500 5000, Mon-Fri 8am-8pm, Sat 10am-6pm, Sun 11am-5pm. The face-to-face service will only be piloted in the North-East and North-West.

[v] See Closing the advice gap: providing financial advice to people on low incomes; A national

dividend: The economic impact of financial advice; and The advice gain: The impact of generic financial advice on the financial services industry all of which can be downloaded from the Foundation’s website.