The Financial Services Bill will establish the Consumer Financial Education Body which will be responsible for the national Money Guidance Service. In the Foundation’s early research it recommended that an independent body was the best option to govern Money Guidance.
Money Guidance will be a vital service for the millions of low earners1 who currently fall into an advice gap - where commercial advisers focus their attention on those better off and the third sector and government focus on the most vulnerable. This is an issue the Resolution Foundation has been championing since 2005.
The Foundation also welcomes the legislation to fund Money Guidance through the proposed new body and the Pre-Budget Report’s allocation of £20m to roll the service out this spring. It is crucial that the goal of providing generic financial advice to vulnerable consumers is realised as now, more than ever, low earners are in need of help before they miss their first payment.
Sophia Parker, Acting Director of the Resolution Foundation, said:
“The economic context has accelerated the need for free and impartial advice to help people avoid financial crisis. The national roll-out of the Money Guidance Service will help millions of low earners stay in control of their money and maintain their financial health. This is a crucial service – and the recession means it must be rolled out nationally as soon as possible.”
The Foundation recommended that a generic financial advice service was needed to meet the needs of the UK’s 14.3 million low earners who fall into an advice gap.2 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 of ‘MoneyMadeClear’ which were launched in March 2009.3
The Foundation’s previous research has shown that greater access to financial advice could leave low earners £60,000 better off by the time they reach 60 years old, deliver welfare savings of £100 million within 10 years and provide long term benefits to the financial services industry.
Further background:
The pathfinders are jointly run by the Government and the Financial Services Authority (FSA) backed by £12 million. They offer help with money issues online, over the phone and face-to-face across the North West and North East of England. The pathfinder builds on the FSA's Moneymadeclear website and helpline, which people can access wherever they are in the UK.
A poll conducted for the Resolution Foundation in 2009 found that nearly 3 million low earners worried ‘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).4 In 2007, only 1 in 10 low earners worried ‘all the time’, compared to nearly 1 in 5 today.5 The poll also found that, today, nearly 90 per cent of low earners worry at least ‘sometimes’ about their personal finances.
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
The Foundation’s poll suggests confidence in the banking sector and in financial advisers had 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.
