No One Is Average

No One Is Average

By Martin Hagerty, Chairman, Castlight Financial

Martin Hagerty has over 30 years’ experience in the credit risk industry across some of the world’s major blue chip organisations, most recently as Chief Risk Officer at HSBC for the retail bank in Latin America.

According to its own website, The Office for National Statistics is the UK’s largest independent producer of official statistics and the recognised national statistic institute of the UK. Its job is to collect, analyse and disseminate statistics about the UK’s economy, society and population.

One of its key functions is to monitor prices and calculate inflation using a “basket of goods and services”. Each year the basket of goods is amended to reflect changing taste and trends. For instance, this year exercise leggings, action cameras such as GoPROs, raspberries, quiche and mashed potato were added to the list and pork pies and edam cheese were ditched.

But I eat as many pork pies in 2018 as I did in 2017 and I’m no less fond of a slice of Edam on wholewheat bread as I was last year. I also live in Wales and I can guarantee there are more Welsh cakes on my shopping list than feature in the shopping baskets of my colleagues in Glasgow.

Broad Brush Strokes

The ONS do what they do very well and its a robust and respected institution. But the picture of people’s lives and the cost of living of those lives is painted with very broad-brush strokes. The statistics can only tell the story of an average person’s life and no-one is average. They don’t even live in average places – there are hugely different regional costs in food, services and transport between London, Newcastle and Inverness. As a dear old friend of mine, the late Dennis Turner of HSBC used to love to quote, “a man could be at average temperature with his head in the freezer and his feet in the oven!” In other words, averages are rarely accurate for an individual.

Until now, these ONS statistics were relied on by lenders to estimate how much an applicant is likely to spend on monthly outgoings such as household shopping, transport and utilities.

They contributed to a person’s credit profile, influencing how their affordability was calculated and in turn, whether or not they were approved for a loan or credit.

People Are More Than Average

At Castlight Financial we believe that people are more than an average. And we believe they should be able to use their own, unique financial, income and expenditure data to understand and demonstrate their affordability.

That affordability should be assessed on what they actually spend their money on – not on an average shopping and services budget based on 718 items in the ONS basket.

Castlight Financial’s Affordability Passport provides that unique financial profile by using open banking technology to categorise the thousands of individual transactions made by a potential borrower over many months, into 155 categories of spending and a further 29 for income. That means the borrower and the lender can see exactly what and where an individual spends their money and how much they can afford to borrow and repay.

And that will be very different for everyone in the country. Because no-one is average. And not everyone eats quiche.