1.3 Clarification of Terms
Community Inclusion – The following description was locally defined through the Homelessness to Housing Stability Strategy: Policy Framework (Social Planning, Policy and Program Administration, 2012) and explicitly recognizes financial inclusion. An inclusive community ensures that everyone feels they belong and can participate in community life. Community inclusion does not mean that everyone must assimilate or conform. It means that participation in community life is accessible to everyone and the community is designed to support people in their efforts to be included – regardless of their level of personal resources or their status relative to other community members. Inclusive communities intentionally support people to feel “at home” and include the following eight characteristics:
- Build Environment
Financial Inclusion – Financial inclusion is a component of community inclusion. Financial inclusion has been defined as “a state in which all people who can use them have access to a suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients” (Centre for Financial Inclusion, 2011). In contrast to financial exclusion, financial inclusion is about dignity (Centre for Financial Inclusion, 2011), which involves self-determination, equal access to basic needs, the ability to meaningfully contribute to society, and having voice, choice and control over the decisions that affect our lives (Shannon, 2007). In other words, financial inclusion promotes equality and fair access to the resources and opportunities to participate in the life of the community and society as a whole.
Adapting the formal definition to more closely align with the local emphases on community inclusion, financial inclusion would involve:
Full-range of quality services - Regulated banks and credit unions offer quality financial products and services that meet the unique needs of individuals with low-income. Public programs and services with financial benefits such as income support and tax credits reach their intended recipients; and financial advice, information, support, and education are relevant to people’s financial realities.
Accessibility - No-fee and low-fee services increase accessibility of financial services for individuals with low incomes; however financial institutions do not typically advertise these services (Buckland 2008). Fees need to be transparent and disclosed in an open manner that allows easy comparison between products and services. To be accessible, services must also be convenient and responsive to everyone who needs them, including people with disabilities, language barriers, visible minorities, rural populations, and other excluded groups.
Dignity – Financial products and services are provided to all individuals with respect and sensitivity to varying financial contexts, and with the intention to support greater self-determination and financial wellbeing.
Financial Exclusion – “Financial exclusion can be described as the circumstances in which a person does not have access to appropriate financial produces or services and are limited in their opportunity, ability and confidence to make informed decisions about their financial situation or organize their money effectively (adapted from Regan and Paxton, 2003). It includes but is not limited to access to appropriate, regulated mainstream financial products (such as bank and credit products), public programs and services with a financial benefit (such as income support and tax credits) and financial advice, information and education” (Fair, Gosse, Moore & Robson, 2008, pg.5).
Financial Literacy is a component of financial inclusion. It is defined as having the capacity to make financial decisions appropriate to one’s circumstances. Capacity refers to knowledge, skills and confidence, where knowledge refers to an understanding of personal and broader financial matters; skills refer to the ability to apply that financial knowledge in everyday life; and confidence means having the self-assurance to make important and responsible decisions (Task Force on Financial Literacy, 2010). Financial literacy is recognized as more than “nice to have,” it is seen as critical in today’s world. Financial literacy is also seen as a sustainable solution for breaking the cycle of poverty (Fair, Gosse, Moore & Robson, 2008).
It includes (as described in Fair, Gosse, Moore & Robson, 2008, pg.5):
Financial knowledge and understanding: The ability to make sense of and manipulate money in different forms, uses, and functions, including the ability to deal with everyday financial maters and make the right choices for one’s own needs.
Financial skills and competence: The ability to apply knowledge and understanding across a range of context including both predictable and unexpected situations and also including the ability to manage and resolve any financial problems or opportunities.
Financial Responsibility: The ability to appreciate the wider impact of financial decisions on personal circumstances, the family, and the broader community, and to understand rights, responsibilities, and sources of advice or guidance.
Financial Institution – Any institution that collects money and puts it into assets such as stocks, bonds, bank deposits, or loans. There are two types of financial institutions: depository institutions and nondepository institutions. Depository institutions, such as banks and credit unions, pay interest on deposits and use the deposits to make loans. Nondepository institutions, such as insurance companies, brokerage firms, and mutual fund companies, sell financial products. Many financial institutions provide both depository and nondepository services (Dictionary of Financial Terms, 2008).
Fringe Banking – Individuals who are either not served or who are underserved by mainstream financial services often conduct their financial transactions in what has become known as the “fringe banking” sector (Buckland, 2008). The fringe banking sector is weakly regulated and includes payday lending, cheque-cashing, pawnshops and income-tax refund advances. Reliance on fringe banking can be a barrier to accessing mainstream financial services and has been shown to result in greater debt and financial instability.
Payday loan - A payday loan is a small, short term unsecured loan that typically ranges from $100 to $400. The borrower guarantees repayment with a post-dated check or pre-authorized debit dated for his or her next payday. This type of loan has been identified as contributing to further debt and financial exclusion as the interest rate charged is much higher than financial institutions or credit cards. The average loan interest rate can range from 330 to 650 % APR (annual percentage of rate).
Cheque-cashing service – A service offered by fringe banks. For a fee that ranges from ($6-$35), cheques are cashed without a waiting period. Reasons people use these services include convenient hours, instant access to cash, lack of identification required at mainstream financial institutions, or lack of a bank account.
Pawnbroker – an individual or business (pawnshop) that offers secured loans to people, with items of personal property used as collateral.
Income-tax refund advances – tax preparation companies provide this service to individuals. The company files an individual’s income tax forms, in exchange for a percentage of the anticipated tax rebate amount. Canada Revenue Agency rules establish the maximum discounting fee as 15% of the first 300 C$ and 5% of any remaining amount.