A study entitled ‘Financial Exclusion and Over-indebtedness in Irish Households’, commissioned by the Social Inclusion Division in the Department of Community, Equality and Gaeltacht Affairs, which has a responsibility to monitor poverty trends under the National Action Plan for Social Inclusion 2007- 2016, and researched by the Economic and Social Research Institute provides new evidence relating to financial exclusion and over-indebtedness among Irish households for 2008. The report will be launched at a conference in Dublin today.
Banking and credit exclusion
Four dimensions were explored in the study. One of the areas examined was access to a current bank account, which is regarded as fundamental to financial inclusion due to the frequency of its use and necessity.. It was found that 20 percent of households in 2008 did not have a current bank account; a figure that is almost three times larger than the EU15 average. Moreover, 40 percent of those without a current bank account were those with low educational qualifications, 38 percent were in the bottom income quintile, 50 percent were also local authority tenants, and 27 percent were aged 55 years or older. It was also found that 31 percent of households did not have access to credit. Excluding those who stated that they did not require credit, 10 percent were deemed as credit excluded from the study. The two other dimensions studied were the ability to save and access to housing insurance.
Over-indebtedness in 2008
While it is assumed that levels of over over-indebtedness increased from 2008 in the context of the increasingly grave economic circumstance, no data is available for the years following 2008. However, figures for 2008 show that 5.4 percent of households were considered to be over-indebted. According to the European Commission, over-indebtedness is defined as a household which is in arrears on housing/rent payments or utility bills or hire purchase/loan repayments or other bills on more than one occasion in the preceding 12 months, one who considers their housing costs or loan repayments to be a heavy burden, or a household which is unable to raise money to deal with an unexpected expense.
12 percent of households considered as over-indebted were in the bottom income decile, 24 percent were headed by an unemployed person, 23 percent were lone parent households, and 22 percent were local authority residents. The majority of indebted households did not have a mortgage. It is suggested in the study that these figures would have vast policy implications including the prospect of further marginalisation for those financially excluded persons unless efforts are made to alleviate the problem.
Recommendations
While one of the criteria of the bank recapitalisation scheme was that bank accounts would be provided for excluded groups, there is little evidence of progress on this. Financial education policies have been recommended by the National Steering Group on Financial Education. These can lead to more effective use of financial services and the development of such initiatives in Ireland. Furthermore, one of the principle reasons for over-indebtedness was a lack of resources. The paper suggests that policies to tackle poverty rather than those that focus solely on borrowing and consumer protection would serve to alleviate the problem of over-indebtedness.