Financial exclusion is often experienced through being unable to access affordable credit.
Financial inclusion is about having access to appropriate and affordable financial services and products.
Having a bank account to receive payments and build savings is the first step in financial inclusion according to the World Bank. But in Australia — where a large majority have access to a bank account — financial exclusion is more often experienced through being unable to access affordable credit.
More than one in 10 Australian adults don’t have adequate access to credit. These individuals are more likely to use fringe credit and report needing additional credit to cover living expenses and pay back debt.
Individuals who have fewer economic resources are found to use fewer financial products and services, and they're more likely to use informal services that are often easier to access such as high-cost payday loans.
Financial exclusion leads to negative outcomes through what’s known as the ‘poverty premium’. This means that those who have lower levels of income tend to face increased costs for making payments, sending and receiving money, borrowing and saving, as they’re often unable to pay for items up front or access insurance.
“Without financial inclusion, people lack protection against financial hardship, a factor that can have devastating effects from generating higher levels of anxiety to increasing social isolation and causing sleeping issues,” says Dr Jeremiah Brown, Research Fellow at the Centre for Social Impact (CSI).
In Australia, young people, migrants and low paid workers are found to be particularly vulnerable to financial exclusion. In fact, of the three million Australians who don’t have access to a moderate amount of credit, more than one in three are aged 18 to 24 and four in 10 are employed.
“Younger Australians and migrants are particularly marginalised,” says CSI’s research associate Chris Connolly. “The casualisation of the workforce is compounding the issue, with an increasing number of people engaged in low-paying casual, part time or seasonal work.”
“Language and identification documents, a lack of financial literacy and geographical barriers all contribute to growth in financial exclusion,” says Chris Connolly.
For example, an individual must be over 18 and an Australian citizen or permanent resident to be eligible for a credit card (although there are some credit cards temporary residents may apply for). An individual needs to have built up a credit history and is often assessed on having a permanent, full time income.
People in rural and remote communities can also experience financial exclusion, as can people in poor urban neighbourhoods where high-credit lenders are more prevalent than regular banking services.
Barriers to accessing financial products and services can include the cost of the services, wait times for appointments, poor customer service, geographical distance and a lack of services in any given area.
The Financial Inclusion Action Plan program, led by Good Shepherd Australia and New Zealand, the Centre for Social Impact and EY, is one example of a system-change approach to addressing issues of financial inclusion in Australia.
The FIAP program provides a platform for organisations including banks, utility companies and fintechs like Earnd to collectively improve financial wellbeing across Australia by taking specific actions within their own remit to address issues of financial inclusion, resilience and wellbeing.
In 2021, Earnd became a FIAP member and launched its Financial Inclusion Action Plan to guide us as we develop our products, services and controls to improve the financial wellbeing of Australian employees.
After seeing the negative financial impact of a payday loan on a young person with no credit history, Earnd was founded by Josh Vernon with the belief that no employee should have to pay unnecessary interest or high cost credit, and that they should be supported in building rainy day savings and achieving financial goals.
It started as an app that provides workers access to their earned income at a small, transparent cost and has been developed into a financial wellbeing platform with products to help employees save straight from their pay, track their earned wages and receive personalised financial education.
See more about our mission.