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1. Introduction
The lack of access to essential financial services describes the state of financial exclusion, which has been trending upward in Canada and other industrialized countries over the past couple of decades, leading to massive growth in the fringe finance industry despite public sector attempts to quell the growth. Since the release of the MacKay Report in 1998, Canadian public policy makers have made efforts to address the issue, resulting in increased consumer protection through the Federal Access to Basic Banking Services Regulations, which introduced the idea of consumer rights to basic banking services (SEDI, 2004). Despite these policy efforts, the fringe finance industry has continued to grow in leaps and bounds, while federal regulations have been criticized for being inadequate and enforcement has been condemned for being weak (Buckland, 2012). More recently, the Canadian Government has taken a cue from the literature suggesting a causal connection between low levels of financial literacy and financial exclusion (Atkinson et al., 2007; Buckland, 2012; Simpson and Buckland, 2009; Buckland and Dong, 2008; Bryne et al., 2007; SEDI, 2004), and provided support for financial literacy initiatives such as the one incorporated in Canada’s recent Economic Action Plan (Government of Canada, 2014). While financial literacy is acknowledged to be an important life skill for all members of society, there is no conclusive evidence suggesting it is a solution to financial exclusion. Given that programs to build financial literacy and capability skills have become common strategies for addressing financial exclusion, this research investigates the effectiveness of allocating resources to such initiatives. The objective of this study is to explore the relationship between financial capability and financial exclusion with survey data collected from the Canadian city of Kamloops located in the southern interior of British Columbia.
FFIs mainly consist of check-cashing firms, payday loan companies, pawnshops and rent-to-own firms[1]. Pawnshops have the longest history as FFIs; however, the payday loan industry, which emerged in the 1990s, has rapidly grown to approximately 1,400 retail outlets across Canada, serving approximately 2 million Canadians (CPLA, 2014). Typically, check-cashing services and payday loans are provided by the same firms.
The relevance of this research is grounded in the problems stemming from rising trends in financial exclusion and associated use of fringe finance....