Buried on page 98 of last week’s budget was the announcement that the Resolution Foundation has been waiting for since we began work in 2005 – that a free and impartial financial advice service would be available on a national scale from 2010. A Money Guidance service branded MoneyMadeClear will be rolled out across the country.
MoneyMadeClear is not a debt advice service but is shaped more along the lines of a GP service to signpost and help people manage their money before they need to rush to A&E in crisis. This could include advice on how to budget, how to swap providers to get the best deals, and what different savings choices are available. The service will not recommend a particular product but will advise people on their options to help them stay in good financial health.
This service is open to all, but aimed at people particularly vulnerable to the consequences of poor financial decision-making. This includes the 13.4 million low earners that are the focus of the Foundation’s work.
Low earners are often ‘too rich’ to receive state support, and government or third sector schemes tend to be aimed at the poorest or those in acute debt. However, on annual household incomes of between £12,000 and £27,000, low earners are also ‘too poor’ to be the target of independent financial advisers. Low earners therefore fall into an ‘advice gap’.
The Foundation identified this advice gap and found 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 £100m within 10 years and provide long term benefits to the financial services industry. The Foundation developed proposals for a national generic financial advice service and costed the service at £50m which could be shared equally between the Financial Services Industry and the government.
Ed Balls, then at the Treasury, asked Otto Thoresen (CEO of Aegon) to undertake an independent review, which recommended in March 2008 that a Money Guidance service be set up. The Treasury immediately announced two pathfinders of ‘MoneyMadeClear’ which are jointly run by the government and the Financial Services Authority (FSA) backed by £12m. The pathfinders which went live earlier this month include a website, helpline, and face-to-face advice across the North West and North East of England.
The government’s announcement in the budget to introduce legislation so that a national service could be rolled out from 2010 could not come at a more crucial time. A poll this month for 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. It also found that confidence in the banking sector and in financial advisers has fallen since 2007:
• in 2007, 45 per cent of respondents said that they would go to a bank and building society for financial advice compared to only 29 per cent today
• in 2007, 32 per cent of respondents said that they would use an Independent Financial Adviser as a source of advice compared to only 20 per cent today
• today, 45 per cent 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 economic context has made it even more imperative that low earners have a source of impartial and free information and advice to help them manage their money and avoid getting into financial crisis. The government should be congratulated on recognising this and responding quickly. 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.