Counting the cost of digital and financial exclusion

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One report published this week by Virgin Money and WPI Economics, Tackling the Barriers to Financial and Digital Inclusion in Scotland, highlights the significant impact it is having on the Scottish economy.

Key findings include that digital exclusion impacts wellbeing in Scotland to the value of £1.2 billion annually, unbanked households pay £62 million more in bills per year, and digital and financial exclusion causes 36,000 additional scams each year, costing £32m.

There are around 104,000 households in Scotland who do not have access to a bank account. Households without this facility face additional costs with bills and everyday expenses as they are unable to get better rates and payment plans.

The report also found that “digital natives” are no more protected from the impacts of such exclusion than older generations.

In Scotland, Gen-Z adults (14 per cent) and older generations (another 14 per cent) are almost three times more likely to experience digital or financial exclusion than Millennials (5 per cent).

Half of Gen-Z respondents also stated that they have very low confidence in money management or using financial products. The research revealed considerable concern about scams across Scotland –70 per cent of Scottish adults surveyed said they were worried about the sophistication of scams.

Half of scam victims reported worsening mental health as a result of being targeted by fraudsters, with 46 per cent saying that being targeted has made them less likely to access financial services online as a result.

Some 36 per cent of Gen-Zers say they have been scammed, compared to19 per cent of older generations.

Gen-Z is also the generation least likely to be confident in avoiding scams – 66 per cent, compared to 79 per cent of Millennials, and 73 per cent of older generations.

Raymond Pettitt, director of customer service and operations at Virgin Money, says: “This research busts the myth that younger generations are immune from digital and financial exclusion. In reality, Gen-Z is falling through the cracks, just like the oldest in our society. We encourage the Scottish Government to act swiftly in partnership with the UK Government, banking industry, and the third sector to create a unified approach to tackling this.”

Focus group discussions carried out for the report revealed that those living in Scotland were fearful about the risk of being scammed.

For example, Dave, 39, said: “Unless it’s absolutely vital that I need to do something [online], I would probably not do it or at least have a lot of hesitation. I’ve heard a lot of crazy scams and I always [think] it is a matter of time before it happens. I try and avoid doing it unless I’m 100 per cent sure, and to be 100 per cent sure is pretty tricky.”

The research started from the basis of assuming some digital and financial capabilities. But 5 per cent of Scottish adults surveyed said that they do not have access to a current account. Just over a quarter have no savings, and almost a third do not have a credit card.

The report made three key recommendations for Scotland, focusing on the actions the Scottish Government can take to bolster levels of financial and digital inclusion:

1. The administration should swiftly deliver a new Digital Inclusion Action Plan.

2. Holyrood should use its convening power to establish a Financial and Digital Inclusion Taskforce, drawing on the public sector, the financial services industry, and key third sector stakeholders.

3. The Scottish Government should commit to using dormant assets to provide funding to organisations and initiatives seeking to tackle financial and digital exclusion, adopting a similar policy to that in action across England and Wales.

Virgin Money insists it remains focused on addressing these issues. It states that it is the only bank working with the National Databank to offer free SIM cards in its branches to those facing data poverty.In addition, its funding through the Virgin Money Foundation has delivered £1.3m to 15 community anchor organisations in Glasgow through its Building Digital Skills fund, which has awarded 93 grants to schools totalling £203,000 via its Volunteer and Connect fund.

Sandy Begbie, Scottish Financial Enterprise chief executive, comments: “Digital exclusion puts people at a distinct disadvantage in today’s society, making it harder to receive benefits, secure housing or get a job.

“When we launched our sector growth strategy, we made clear that tackling financial exclusion was a priority for our industry – one with potential to make a meaningful difference to the lives of people across Scotland. Through our work with regulators, charities and the banks themselves to establish a pilot project delivering bank accounts to school leavers, we want to connect more people to the banking system.

“As an industry, we are determined to ensure that everyone in Scotland feels the benefits of having a strong financial sector, and providing greater access to the financial system is a key part of this plan.”

A separate report published this month by Royal London revealed that a significant number of UK households remain financially vulnerable and are struggling to stay afloat.

Its annual Financial Resilience Report found large numbers of people saying they are facing financial hardship.

Some 41 per cent of Scots aged 50 to 69 said their discretionary income has reduced in the past year, 39 per cent said it has stayed the same, and only 20 per cent reported an increase.

Meanwhile, a fifth of Scots expect to have less money for retirement due to the cost of living crisis. Some 3 per cent have had to delay retirement, and 5 per cent have had to prioritise short-term bills over saving.In terms of retirement planning awareness, 37 per cent of Scots aged 50 to 69 said they have thought about how much they might need in retirement, but haven’t done the calculations. And just under a third said they haven’t even thought about how much they might need.

Confidence tends to be lacking when it comes to retirement savings, according to the Royal London report. Only 4 per cent aged 50 to 69 feel very confident that they are saving enough for a good standard of living in retirement, and 36 per cent are not at all confident.

Across the UK, Royal London said that one of the most concerning findings is that one in five adults have less than £100 in cash savings, a figure that has remained unchanged for two years. With little or no financial buffer, the report warns that these individuals are highly vulnerable to rising costs and unexpected expenses.

The research also found that, looking at the UK as a whole, one in ten are on the brink of a financial crisis and 2 per cent are already in one. Mid-life UK adults are the worst affected age group, with 16 per cent either in or close to a financial crisis. Only 41 per cent of mid-lifers are satisfied with their current standard of living.

But there were some signs of recovery in some people’s finances. This year, 59 per cent of UK adults said they had money left over at the end of the month, compared to 49 per cent last year, and there was a small rise – £15,864 per person compared to £15,549 in2024 – in the average amount of people’s cash savings.

Across the whole sample, more than half of mortgage borrowers said their housing costs had increased in the last year by an average of £327 per month. Among single mortgage borrowers, the rise was £252 per month with those living alone paying £298 per month more.

Sarah Pennells, consumer finance specialist at Royal London, says: “We have seen some signs of an improvement in people’s finances in the last year, but those still struggling with higher bills and food prices face difficult decisions.

“We’re seeing a big divide between those who can absorb higher costs and those making daily sacrifices – cutting back on essentials, dipping into their savings, or going overdrawn at the end of the month.

“After more than three years of rising costs and higher bills, we’re seeing the impact on people’s longer-term finances, as well as their day-to-day spending.

“For those feeling the squeeze, it’s worth checking if you’re eligible for state benefits, grants or help from local councils. Many miss out simply because they’re unaware of what is available.”

Sarah concludes: “Reviewing direct debits and subscriptions can also help – save money, and even the smallest changes can add up over time.”