Scotcash Customers Walk a Financial Tightrope

Posted by: Sharon MacPherson on June 26 2020 | Tagged:

Financially vulnerable, low-income individuals are more likely to experience financial exclusion as they are unable to access financial services that meet their needs. How do they cope with economic instability, and what is the role of social networks in their coping strategies? Using financial diaries, Caledonian University explored the day-today financial transactions of Scotcash customers along with forty-five low-to-moderate income individuals with restricted access to mainstream lending in Glasgow, UK, over a six-month period.

The financial diary data highlight that low-to-moderate income individuals living on the verge of financial exclusion do not always have enough cash to cover their basic needs, and they turn to social networks and informal borrowing via family and friends to manage their financial instability. Indeed, the research found individuals’ financial lives are so complex that diarists were making financial-related decisions approximately every other day, which represents a significant cognitive burden. 

This research reveals that social networks, instead of the state, operate as the main safety net for many financially excluded individuals. It further asserts that the importance of social networks for financial stability, even in advanced economies such as the UK, indicates that (a) the design of the current welfare system does not cope well with growing income volatility and financial insecurity, and (b) there is a gap in the provision of credit.  It also notes the reliance on social networks can condition how relationships are understood in poorer communities and can harm those networks as well as compound financial exclusion.

Whilst the research acknowledged the need to tackle the bigger, systemic issue of meeting basic needs, the focus was on ways to address the gap in affordable credit. One way to reduce the reliance on social networks is to promote “alternative” economic spaces that prioritize the interests and well-being of their users, such as CDFIs like Scotcash.  However, the research calls for more government support for these institutions, as it is difficult to sustainably offer financial products to low-to-moderate income individuals. Alternative high-quality, affordable, fast, safe, and flexible financial products that allow individuals to build up credit histories are required to help the financially insecure, the research states. These should be combined with anti-poverty policies that are better adapted to the needs of those who do not have enough slack to cope with the ups and downs of everyday life.

You can read the full report here