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JILT 2009 (3) - Chambers

From Financial Exclusion to Online Financial Inclusion

Clare Chambers
Bristol Law School
University of the West of England


The aim of this paper is to explore the correlation between financial exclusion and financial education and whether it can be better tackled through online education. The proposition is that financial exclusion is a complex and diverse phenomenon and that the link of low financial literacy levels in people who are financially excluded is an interesting explanation as to why exclusion occurs. This paper recognises that there are many reasons why people are financially excluded but this paper focuses on just one element of this, that being the lack of financial education. The paper goes further than recognising the link between financial education and financial exclusion and determines that in the modern technical world, online education, or virtual education could offer a solution to the educational gap that is often found by those in financial education. Therefore the paper is divided into three parts. The first is to explore what financial exclusion is. The second is to examine the empirical findings of research conducted by the researcher and then finally the paper explores financial education in a virtual medium. The paper does not proffer that virtual learning is a panacea for financial exclusion but merely offers a possible additional tool in tackling the phenomenon. This is especially important in times when the banking industry is under going major reform in the hope that financial education does not get forgotten amongst the policy reform objectives.

This is a Refereed Article published on 22nd December 2009.

Citation: Chambers, Clare, 'From Financial Exclusion to Online Financial Inclusion', 2009(3) Journal of Information, Law & Technology (JILT), <>


Financial exclusion, financial inclusion, technology, financial education

1. Financial exclusion

Financial exclusion is a key term of this paper yet it is a nebulous and often misdiagnosed and understood phenomenon. What is understood is that financial exclusion is a wide ranging and dynamic problem and that it is part of the wider problem of social exclusion in society. There has been much research, by both academics and government, has been conducted into the different types and variations of social exclusion by such bodies as the Social Exclusion Unit (SEU) and Kempson (1997 to date) in her work on social and financial exclusion. It can be seen from such work that a person who is financially excluded is also often socially excluded thus demonstrating the dynamic relationship between the two (Mckillop and Wilson 2007). The Social Exclusion Unit defines social exclusion as: A shorthand term for what can happen when people or areas suffer from a combination of linked problems such as unemployment, poor skills, low incomes, poor housing, high crime, bad health and family breakdown. (Cabinet Office & Social Exclusion Unit 2001(a) p.10)

Many definitions of financial exclusion have been offered by different commentators; Richard Vaughen of the Office of Fair Trading believes that such exclusion is a two-fold concept. Vaughen states that exclusion can either be caused by price or income. (Office of Fair Trading 1999 p.19) Price exclusion occurs where an individual at any given income freely chooses not to purchase goods or services because the market price is above the maximum he or she is willing to pay. This willingness will be partly determined by individual preferences. Secondly people can be excluded due to income exclusion. Income exclusion refers to the non-consumption of goods or services arising from low incomes. (Office of Fair Trading 1999 p.19)

Research (Devlin 2005, Kempson and Whyley 1999, 1999b, Mayo 1998, Mckillop and Wilson 2007) poses another very interesting questions, these being: Why are people excluded? It is this question which is of interest to this paper in particular.

The general consensus among researchers in this area is that financial exclusion and social exclusion cannot and perhaps should not be separated (Gosling 2008). If one is present in a set of personal characteristics the other is more than likely to also be apparent (Chambers 2004). As we have just noted above 58.8% of respondents said they were lower class and that 60% said that they were lower class and had experience financial exclusion. However having said this there is not a strict rule as to who is, or who is not, financially excluded with 40.4% of middle and higher class respondents saying that they experienced financial exclusion.

All different groups of society are, and can be affected, by financial exclusion and social exclusion. It is important to remember though, the integral nature social exclusion has in financial exclusion and it could be proffered as one of the many reasons as to why people become financially excluded. Financial exclusion does not mean poverty, as often is it misunderstood; rather it is the set of characteristics, such as the lack of basic financial products, which does not allow a person to fully participate within the mainstream financial service market place.

Financial exclusion does not operate in isolation; it is not a singular facet or aspect of life or of the financial industry with set easily identifiable parameters. As a phenomenon it is diverse, complex and multi-layered, manifestly giving rise to a whole host of reasons as to why people are financially excluded such as previously being refused financial services and not having the confidence to reapply even if circumstances change.

"I used to have a bank account but things went really wrong and the bank closed my account. I have tried to get back to normality but the banks won't touch me". (Chambers, 2004)

Another respondent stated:

"I don't want to go into a bank let alone have an account. Those places are not for people like me". (Chambers, 2004)

Another respondent stated:

"I just don't understand the banks and the system that they work in. I can't get to grips with the technical information". (Chambers, 2004)

Similar another stated:

"Its all moved on so quickly that I can't keep up to date with the changes. I just want to use a bank like I used to. I don't feel I am able to know as I don't feel part of the system". (Chambers, 2004)

As such it is often a combination of these reasons which give rise to the occurrence of a particular case of financial exclusion. Financial education, however was one of the major reasons that stemmed from the interviews as a reason for not being involved in financial services. There is a belief that the banks are too technical and t6oo advanced for people to really be able to use them. Similarly the respondents believed that the banks made it difficult for them to understand the system on purpose because their custom was not valued.

"What do they want with my little bit of money, They don't are what I do as long as I don't bother them. I need some saving devices but each time I try and take one out they use such technical jargon that I get confused and embarrassed and leave without signing anything. I just don't feel equipped to deal with them banks". (Chambers, 2004)

For the purposes of this paper financial exclusion is deemed to constitute both the total lack of participation in the financial market place and the lack of one or more of any necessary financial products such as: a current account, a savings account, house insurance, and short-term credit. This definition is in line with thinking of the Office of Fair Trading, which considers that the above products are considered to be primary essential products and as such if a person does not have access to these products then they can also be classified as being financially excluded. The research is based on the earlier findings which link financial education to financial exclusion, a brief discussion of these shall now take place. These definitions are important because of their inter-play with the educational aspects of combating the phenomenon. If we therefore take financial exclusion to be the lack of all or some of the basic financial products we can start with a underlying foundation of what the phenomenon constitutes and therefore can start to education around this from occurring or to move away from the situation.

2. Empirical Findings of Financial exclusion

To understand the phenomenon of financial exclusion in more detail the researcher undertook a series of interviews with people who were classified as being financially excluded. The respondents were self-classified to begin with and then clarified against the definition laid out above; that being lacking all or one of the basic financial products. The respondents were a random sample of 50 people, who were located via homeless shelters and housing projects across the country. Content analysis was undertaken on the interview transcripts and it was found that the respondents felt that they moved through a process of the development of financial exclusion. As part of their process through financial exclusion's development, they identified that financial education was an important aspects lacking in their lives which they needed to get out being financially excluded. Similarly they recognised that financial education could have possibly helped them not to become financially excluded in the first place.

Through the content analysis of the qualitative data it was shown that there were 4 process stages of financial exclusion, these being, factors of exclusion, individual alteration, effects of exclusion and actions wanted and demonstrated the chronological order of the development of financial exclusion. Each of these processes had further sub streams which demonstrate the actual factors contributing to each process stage.

fig 1

Fig 1. The Process of Financial Exclusion

The above diagram demonstrates that the 'process of exclusion' through 'bank's business', 'banks actions', 'development of exclusion' and 'regulation' leads on to 'process two: individual alteration'. Through categories within this process such as 'division' and 'exclusion results: feelings' the process leads on to 'process three: effects of exclusion'. Encompassed within this process are the categories of 'exclusion results: coping' and 'exclusion results: practicalities', which in turn lead onto 'process four: action wanted' which contains the category 'financial education'. Thus the template outlines a four stage process broken down into a nine stage category process of the evolution of exclusion. All these stages can be reflected upon and demonstrated as how they affect the respondents. Banks have been found to be a place, where the respondents in this research, do not like to go. One respondent said,

"I get nervous going into a bank, it's like they all know I have no money". (Chambers 2004) The actions of the banks have affected people greatly; "I feel like I am an idiot in front of the 18 year old pre-pubescent boy. I could be his mother and he treats me as if I am a bit of dirt". (Chambers 2004)

The development of exclusion is promulgated by the bad relationship people have with the banks and is not helped by the regulation offered to customers.

"Them rules the banks make me follow mean nothing to me. I don't follow them cos they don't mean nothing to me". (Chambers 2004)

What is interesting to note is that through the development of exclusion the respondents feel that they are alienated and disengaged from the banks. Furthermore at the end of the process of developing exclusion, all the respondents would like to be better financially educated to ensure they can manage their relationship with the banks. This alteration and development by the respondents show clearly the breakdown of the relationship of the respondent and their increasing desire to know more about the workings of the bank so that they can gain control over their finances. There is a misnomer that people who are excluded are those who do not want to engage with society. This research shows that the respondents do want to engage but are not well equipped to do so. Financial education was deemed to be essentially in promulgating this relationship of the banks and respondents.

The individual alteration and division is experienced by respondents as they feel more and more alienated by the banking sector:

"I used to talk to the bank, you know when I went over drawn but they got so p** with me and wouldn't listen. They didn't understand that I had to feed the kids. Bills had to come second. I stopped going in and talking to them as they look down their noses at people like me". (Chambers 2004)

Another respondent made it clear that they felt there was a division:

"It's like them and us. They don't care what happens to us. It's like they live in a different world. No one knows what its like". (Chambers 2004)

Both these respondents stated that they wanted to understand and grasp what was going on, but they wanted to do this without being condescended or patronised. Financial education is therefore a very private and individual matter. Learning through a classroom or on a one to one basis was not considered by the respondents as a beneficial method. This view of one respondent reflected the view of many:

"I don't want people to know my mess, or to know how stupid I am; I want to learn but how do I learn if I can't get access to information". (Chambers 2004)

This shows the difficulties in finding the appropriate methods of delivering effective financial education among those financially excluded. Living with the consequences of the alienation and the practicalities were faced calmly by the respondents in the research:

"Well what can you do? I need to put food on the table each night, clothe the kids and make their life bearable. The banks can go F*** themselves. I have had it with them. I'll cope without them. Who are they to tell me what I can and can't do"? (Chambers 2004)

Without doubt all the respondents said that financial education would benefit them. Put succinctly by one respondent:

"If I knew what they were talking about and how the system works I could fight back and make them listen". (Chambers 2004)

This cycle from desperation to disengagement to a desire for knowledge is not uncommon. A further respondent stated:

"banks and their staff all talk in a language I just don't understand, it's a complete turn off, if I don't understand them I don't want to be a part of it". (Chambers 2004)

Another respondent stated:

"even the adverts on TV are overly complicated. I don't know what that APR thing is. I feel stupid at my age not knowing that, and I don't want to ask anyone". (Chambers 2004)

Financial education was an obvious talking feature in the interview. One respondent stated:

"Financial education, I didn't even know there was such a thing. I never did it at school, although school was a waste of time for me. My parents told me to get out there and to get a job, a certificate would not get me anywhere but hard work would. I manage my money in my way as I don't understand any other way. I suppose if you said to me there is a better way and told me, in your way of explaining things, then I may change, buy there is not one to tell me, on-on-one you know, what to do and I am not going back to a class room to learn". (Chambers 2004)

These last three respondents are putting forward a powerful statement on financial education, the educational system and the banking industry. There is no homogeneous learning profile which is being delivered to either children or adults which is fitting the needs of the population. So what is the actual financial education which is being delivered in the UK to date? This next section of the paper explores this and why the research believes online financial education would suit the needs of those financially excluded.

3. Financial Education

Financial education is therefore important to ensure that children are equipped with the necessary tools to be financial included. This is even more important as we are moving towards a more digital age where information exclusion can also lead to financial exclusion. The Government along with other not for profit organisations[1] have worked since 2000 and the enactment of the Financial Services and Markets Act 2000, to promote financial literacy among the whole of society and not just the young but this study has focused primarily on the young because of the necessity to educate early to avoid financial difficulty problems. The main retail banks are also partners to the promotion of financial education.

The Financial Services Authority (FSA) have over the last eight years, initiated many projects to increase financial literacy within the UK. (FSA Financial Capability These projects have been directed at small scale schemes that focus on parts of the society. There have been no joined-up projects. (FSA Financial Capability Financial capability is about making sensible choices in relation to managing money. It helps pupils make independent and informed decisions about keeping money safe. (The National Curriculum. 'Financial capability and enterprise education'. 2008). Financial education therefore needs to teach sensible decision making.

There has been an increase in the need for financial education because of the evolution of the banking industry. Banking has become more and more complicated over the last couple of decades. "The importance of financial education has increased in recent years as a result of financial market development and demographic, economic and policy changes." (Organisation for Economic Co-operation and Development. Improving Financial Literacy. 2005 p.111). The financial education that used to be passed on from parents to children is no longer totally relevant as the parents are not keeping pace with the changing nature of the banking sector advancements in financial products. Therefore it is key to educate children in financial education as it evolves.

The OECD (Organisation for Economic Co-operation and Development. Improving Financial Literacy. 2005. p.112-113) have identified factors that have increased the importance of financial education:

  • The complexity of the products;

  • Increase in the number of financial products;

  • The baby booms and increase in life expectancy;

  • Changes in pension arrangement, and

  • Low levels of financial literacy.

Government have acknowledged the need for financial education within the national curriculum. During 2007 and 2008 the Government, along with the FSA and The Financial Services Practitioner Panel, commenced initiatives to ensure financial education is part of the national curriculum. The Government's proposal to include financial education within the national curriculum was backed by The Financial Services Practitioner Panel. "The panel has always felt that the most effective way to make significant progress on financial capability would be through appropriate amendments to the national curriculum". (The Financial Services Practitioner Panel 2006-7 p.16) The Government have decided that financial education must be pervasive throughout the curriculum. They proposed that financial capabilities and enterprise education should be included in key stage 1 and 2 and 3 and 4. (The National Curriculum. Financial capability and enterprise education).

The OECD believes that, "Financial education can benefit consumers of all ages and income levels. For young adults, it can provide basic tools for budgeting and saving so that expenses and debt can be kept under control". Organisation for Economic Co-operation and Development. Improving Financial Literacy. 2005. p.113) The benefits of financial education are not only for the recipient but also society as a whole. "Financial education can also benefit the economy". (Organisation for Economic Co-operation and Development. Improving Financial Literacy. 2005. p.113)

So why is online or virtual education an effective means of delivering financial education? We must remember a couple of things to answer this question. Firstly, those who are learning as an adult, financial education may be embarrassed or ashamed of their lack of knowledge. Online or virtual education allows the learner anonymity. Secondly financial education is a very personal and specific subject to teach. Online or virtual financial education can be tailored to suit the individual and they can control their learning experience. Thirdly, financial education is a very difficult subject and as such online or virtual learning offers the learning the time and space to revisit more complex matters.

Academics have explore the effectiveness of online, virtual or interactive (terms interchangeable) education. As Ramley and Zia state:

"The new forms of interactive technologies enrich traditional forms of learning and serve as links between active and passive learning, individual and group learning, and the transmission and generation of knowledge". (Ramley and Zia 2005)

Furthermore Schollmeyer states that:

"to many, video and computer games represent an adolescent diversion, a parental annoyance that thwarts homework, chores and all things productive". (Schollmeyer 2006)

However, it has been found that "games let us create representations of how things work in the medium that's built to do exactly that". (Schollmeyer 2006). "Any casual observer who has seen how someone interacts with a computer or video game can easily understand how games can quickly captivate their audience". (Schollmeyer 2006) However games are not necessarily the panacea for all learning experiences. This has also been recognised by Schollmeyer who states that; "Gaming is by no means a replacement to existing models and stimulation building processes and practices, but it has tangible advantages that ultimately could result in wider, more flexible and more versatile products". (Schollmeyer 2006) What is considered to be the best for of education is through a blended learning approach. "Blended Learning is learning that is facilitated by the effective combination of different modes of delivery, models of teaching and styles of learning, and founded on transparent communication amongst all parties involved with a course."(Heinze and Proctor 2004)

According to the review of financial education within the UK carried out in 2005 there are serious gaps in the effective delivery. It was stated that: "over eight out of ten primary and secondary schools in England reported teaching personal finance education, but fewer than half of secondary schools had a formal policy on personal finance education. The research found that, no matter what the extent of provision, its effectiveness was dependent on school policy and on the personal interest and skills of the teacher(s) responsible for delivering PSHE and other subjects which might incorporate financial education. (Review of Financial Services 2005 p.5) We can therefore surmise that although it has been recognised as an important factor for the educational curriculum within schools, it is not being delivered effectively. One of the reasons for this could be because of the lack of experience the teachers have at delivering financial education. This was found to be the case in previous research carried out by the research. (The 'Innovation in Inclusion' project)[2] It is also a hard and nebulous subject to teach and to engage the students. Online financial education for schools could possibly engage the students and allow them to learn about finance before the get to the stages of financial exclusion.

The report highlighted that although support was available to adults (p.6) there were a number of notable gaps in general education as well as fixing the education deficit that is present in those who have low financial literacy levels. The report demonstrated the following:

  • insufficient coverage of the 'speaking and listening' skills required for the effective management of personal finances and dealing with financial institutions, whether making enquiries as to the meaning of formal communications (written or verbal) or gathering sufficient information to support complex decision-making;

  • inadequate materials for those with pre-entry/entry level 1/ 2 literacy and numeracy skills, to bring them up to the level necessary for tackling the basic level of the Adult Financial Capability Framework which requires Entry 3 literacy and numeracy;

  • the absence of a single resource, set in everyday experience, covering the numeracy needed for personal finance. The assessment suggested that people needed to be aware of the link between everyday financial tasks and the literacy and numeracy skills that underpin them;

  • the need for a wider coverage of topics such as: healthy eating, gambling and Islamic finance;

  • areas identified as in need of resources, such as consumer rights, responsibilities, sources of advice and implications of finance; and

  • the content of resources - although learning materials were aimed at people struggling with literacy, numeracy, and financial skills, they referred to income levels that were much higher than the target group's income would be. (Review of Financial Services 2005 p.7)

The report made numerous recommendations for reform but one that is particular useful and pertinent to this research is that they stated that, "the method of delivery and the content of courses need to be relevant and tailored to suit the individual". (Review of Financial Services 2005 p.8) Online financial education meets this need, but allowing the student (whether it be adult of student) to take control of their learning process. Control by the learner within a simulation is vital for effective learning.

This need and collaboration between financial education and online teaching methods has been adopted by the UK government in the form of NSLP Financial Education Online ( Various other organisations have also been created globally to help such as the FDIC Financial Education Programme ( the problem that is encountered is that although good work is being done, the general population do not know about these sites, created for the very purpose of helping them. Therefore perhaps it is not just awareness of financial education that needs to be raised but also that there is help out there. Financial education and online teaching must be taken seriously because it can be demonstrated that there is a direct link between the effective learning outcomes delivered by this method of teaching for financial education. (Innovation in Inclusion project)

4. Conclusion

This paper has illustrated the complex nature of financial exclusion and its relationship to financial education. Both are being explored and tackled by government agencies and academics alike, yet the delivery and effectiveness of programmes are falling short of their desired outcomes. What can be said with a degree of certainty is that financial education is required for those people in financial exclusion. Furthermore financial education is best delivered if it is tailored to meet the needs of that individual learning, who is control over their own specific learning. Online education fits these criteria. What is required now is to increase the awareness of the programmes and educational online sites that teach financial education. The whole subject matter of finance, financial exclusion and financial education seems to be a taboo subject and changes need to be made to make sure that it is a common feature of adult and student education. The researcher acknowledges that to ensure that effective adult financial education is rolled out across the country, will encounter a number of extensive challenges, it is not something that can be ignored. Important policed changes must be made to ensure that it is done so. Perhaps it could be part of a requirement of any housing or benefit system?

To summarise, financial education has been found to be key of increasing the participation rates of financial inclusion and thus social inclusion. The best and most appropriate time for this education to take place is within the education sphere and to use advances in technology and use online educational tools. Government and other agencies are in agreement with this. However the manner in which financial education is being delivered even though it is part of the main agenda of the Government has been found by the researchers, not to be sufficient.


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[1] See the work of: Pfeg

[2] Research findings pending publication 2010.