Financial Vulnerability among Dutch Residents with a Migration Background

Dutch Residents with a Migration Background
An Exploration of the Extent of Financial Vulnerability and its Relationship with Financial Services December 2021 Exploration

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Contents
Summary 3
Introduction 5
Guide to Reading 5
Financial Vulnerability 6
Target Group Definition 6
Indicators of Financial Vulnerability 7
Access to Financial Services 11
Introduction 11
Indicators of Barriers to Accessing Financial Services 12 Literature 20
Appendix: Research Design and Limitations 22

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Summary
The population of the Netherlands is changing significantly in the coming decades. Growing diversity due to the increasing share of Dutch residents with a migration background is an important demographic change in this regard.
As of 2021, the share of residents with a migration background accounts for approximately 25 percent of the total population. This share is expected to rise further to approximately 36 percent by 2050. Against this background, the AFM has conducted an exploration into the financial vulnerability of Dutch residents with a migration background and the relationship with access to financial services. With this, the AFM aims to contribute to further awareness and the societal dialogue regarding this issue.

Financial Vulnerability
Based on this exploration, the conclusion emerges that Dutch residents with a migration background, and especially those with a non-Western background, are on average more financially vulnerable than Dutch residents without a migration background:

• Dutch residents with a – particularly non-Western – migration background have, on average, a lower level of education and a weaker labor market and income position than Dutch residents without a migration background. These factors translate into an average higher probability of debt problems and payment arrears. There are also indications that income differences between Dutch residents with and without a migration background are persistent across generations.
• Another important source of financial vulnerability for specifically first-generation Dutch residents with a migration background is the often inadequate old-age provision due to an AOW gap and missing supplementary insurance (Supplementary Income Provision for Seniors, AIO). 40 percent of pensioners with a non-Western migration background live below the poverty line.
• Naturally, Dutch residents with a migration background form a heterogeneous population group with differences between subgroups and generations. From the conversations held, the image emerges that financial vulnerability seems to manifest primarily in the first generation and certain groups, such as people with a relatively low level of education, in the second (and sometimes also third) generation of Dutch residents with a non-Western migration background. Furthermore, recent refugee groups and status holders have a relatively high degree of financial vulnerability. They often start life in the Netherlands with debts, mostly do not yet master the Dutch language, and are unfamiliar with the Dutch financial system.

Access to Financial Services
Based on the available sources, there is no evidence that Dutch residents with a migration background actually experience limited access to financial services and products, and that this is as such an important driving factor behind financial vulnerability. Nevertheless, this exploration reveals a number of indicators of barriers:

• Dutch residents with a non-Western migration background less often report holding a bank account and investments than Dutch residents without a migration background.
• The language barrier that Dutch residents with a migration background may experience seems to be an obstacle to interaction with financial service providers. Communication and information provision from financial service providers takes place primarily in Dutch.
• The financial system in the Netherlands is often experienced as complex. There is a lack of simple information on how the financial system works and what financial products exist and for which situations.
• Due to digitalization and the closure of physical offices, digital skills are increasingly needed to obtain information about financial products and to conclude them. This is often difficult for older (first-generation) Dutch residents with a migration background, but also for younger people who have recently moved to the Netherlands and have not acquired digital skills in their country of origin.

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• Existing legislation and regulations can have unintended adverse effects on access to financial services. Financial institutions generally do not have specific policies for protecting or activating financially vulnerable Dutch residents with a migration background. One of the reasons for this is that, based on the General Data Protection Regulation (GDPR), they are not allowed to register the ethnic background of their customers. Privacy rules also limit the possibility of helping customers with a language deficit over the phone to conclude financial products. Additionally, statutory information requirements may lead to information that is too complex for this target group and can thus be counterproductive. For (financially) low-literate consumers, it may be more effective to keep information as simple and clear as possible and, for example, replace text with visualizations. Finally, the Act on the Prevention of Money Laundering and Financing of Terrorism (Wwft) oversees the integrity of the financial system. From the conversations held and literature consulted, some indications emerge that refugees and labor migrants in particular may be more at risk of being hindered in their access to financial services due to this.
• Dutch residents with a migration background may on average more often resort to informal or unregulated channels of financial services. Less trust in (financial) institutions and cost considerations play a role here, such as when transferring money to the country of origin. However, these informal channels carry more risks.
• Based on international experience, it is reasonable to assume that Dutch residents with a particularly non-Western migration background have a need for financial products based on Islamic principles for religious reasons, such as Islamic mortgages. Due to fiscal aspects in particular, an Islamic – compared to a conventional – mortgage is an expensive product, resulting in limited actual demand.

Points of Attention for Policymakers, Regulators, and the Financial Sector Attention to the financial vulnerability of Dutch residents with a – particularly non-Western – migration background seems warranted. First, by conducting more research to create a finer-meshed image of the financial vulnerability of subgroups and generations within this population group, so that policy instruments can be targeted. It also seems necessary to pay more explicit attention to financial self-reliance during the integration process.1 Additionally, the possibility of supplementing income to the social minimum via the AIO paid out by the Social Insurance Bank can be brought further to the attention of migrant pensioners and stimulated to make use of it. For policymakers and regulators, it is useful to gain better insight into possible unintended counterproductive effects of current legislation and regulations for (financially) low-literate individuals. This could include the aforementioned information requirements. Additionally, given the apparently latent demand, further research can be conducted into the (fiscal) barriers to Islamic mortgages and, if they exist, how to dismantle them. Financial institutions could further consider how they can respond to this target group in the future. Reducing the language barrier could be part of this. Moreover, financial institutions must find a careful balance between their role as gatekeepers to protect the integrity of the financial system and ensuring accessible financial services for everyone. Care must be taken that Wwft regulations do not prove obstructive for an entire customer group, such as refugees or labor migrants. 1 In the new Integration Act 2022, refugees are financially supported by municipalities for the first six months, but subsequently learning financial self-reliance is not a requirement. See: vluchtelingenwerk.nl.

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Introduction
The population of the Netherlands is changing significantly in the coming decades. Growing diversity due to the increasing share of Dutch residents with a migration background is an important demographic change in this regard. This development has consequences for many societal fields, but how it exactly plays out is largely still uncertain. As a behavioral supervisor, the AFM thinks about – and asks attention for – such societal developments and trends that can have an impact on the AFM mission. Even if this impact may only manifest in the future. From its mission, the AFM aims to contribute to sustainable financial well-being in the Netherlands. Therefore, AFM supervision of financial services specifically focuses on the protection of consumers, especially in (financially) vulnerable situations. Against this background, the AFM has conducted an exploration into the financial vulnerability of Dutch residents with a migration background and the relationship with access to financial services. In the Netherlands, little research has been done on this subject so far. With this exploration, the AFM aims to contribute to further awareness and the societal dialogue regarding this issue. The research is based on multiple sources. In addition to consulting available literature, conversations were held with migrant organizations, government institutions or affiliated organizations, universities, and financial institutions. Additionally, MWM2 conducted interviews on behalf of the AFM with Dutch residents with a non-Western migration background. Finally, data from the LISS panel was used regarding the use of financial products and services by Dutch residents with a migration background.2 These sources have helped provide initial insight into the financial vulnerability of Dutch residents with a migration background and their access to financial services. At the same time, questions remain unanswered and no hard conclusions can be drawn. For example, it is difficult to clearly interpret the access of Dutch residents with a migration background to financial services and any barriers therein. Privacy rules make it difficult for financial institutions to gain broad and granular insight into this target group. Nevertheless, this exploration reveals a number of relevant observations.

Guide to Reading
This exploration first addresses the financial vulnerability of Dutch residents with a migration background. Then, the relationship with access to financial services is discussed. The research justification is included in the appendix.
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In this exploration, we use data from the LISS (Longitudinal Internet studies for the Social Sciences) panel, managed by Centerdata (Tilburg University, Netherlands).

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Financial Vulnerability
Target Group Definition
The starting point of this exploration is the question: how large is the group of Dutch residents with a migration background and how is this group composed? In this question, the definition of migrants as established by the Central Bureau of Statistics (CBS) is used. Here, a person has a migration background if at least one of the parents was born abroad. Distinction is also made between persons born abroad themselves (the first generation) and persons born in the Netherlands (the second generation). Furthermore, distinction can be made between groups with a Western migration background (including new EU member states) and a non-Western migration background. Non-Western migrants come from the so-called classic migrant countries (Indonesia, Suriname, the former Netherlands Antilles, Turkey, or Morocco) and (other) countries from Africa, Latin America, and the Middle East. As of 2021, the group of Dutch residents with a migration background accounts for approximately 25 percent of the total population. Of this group, 11 percent has a Western migration background and 14 percent has a non-Western migration background (Figure 1). Of the persons with a migration background, 46 percent were born in the Netherlands and thus belong to the second generation (Figure 2). The share of residents with a migration background is expected to rise further to approximately 36 percent by 2050. Here, the growth of the number of Dutch residents with a Western migration background increases relatively faster, possibly also due to the expansion of the EU.
Figure 1. By 2050, approximately 36 percent of the Dutch population will have a migration background, compared to 25 percent in 2021.3

3 CBS, 2021 and CBS, 2020. For the 2050 estimate, the CBS (base case) prognosis from the seven sketched future scenarios was taken.
11% 75%
14%
2021
Dutch residents without migration background
Dutch residents with a Western migration background Dutch residents with a non-Western migration background 64% 19% 17% 2050 (expectation) Dutch residents without migration background Dutch residents with a Western migration background Dutch residents with a non-Western migration background Population Size and Composition Netherlands (%)

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Furthermore, this growth is visible in both the first and second generation of migrants. The ratio between the number of inhabitants born abroad with a migration background (the so-called first generation) and the number of inhabitants born in the Netherlands with a migration background (the second generation) is expected to remain relatively stable over the next 30 years.
Figure 2. The growth in the number of Dutch residents with a migration background is visible in both the first and second generation. 4
Indicators of Financial Vulnerability
From the available literature, conversations held, and data sources, the conclusion emerges that Dutch residents with a migration background, and especially those with a non-Western background, are on average more financially vulnerable than Dutch residents without a migration background.
Here, the caveat must be placed that Dutch residents with a migration background form a heterogeneous population group with differences between subgroups and generations. From the conversations held, the image emerges that financial vulnerability seems to manifest primarily in the first generation and certain groups in the second (and sometimes also third) generation of Dutch residents with a non-Western migration background, such as people with a relatively low level of education. Furthermore, recent refugee groups and status holders have a relatively high degree of financial vulnerability. They often start life in the Netherlands with debts, for example, because they take out a loan to finance the flight to the Netherlands and upon receiving a residence permit receive a setup credit for their home from the municipality. Additionally, recent refugee groups and status holders relatively often receive a welfare benefit or have an average low income. 5 Dutch residents with a migration background have, on average, a lower level of education than Dutch residents without a migration background. Statistics on education level can say a lot about the degree of financial vulnerability, because education level is a good predictor of income position later. For example, low-educated people have four times more chance of a low income than high-educated people.6 Dutch residents with a non-Western migration background appear relatively least often to be highly educated and most often to be low-educated (Figure 3). 4 CBS, 2021 and CBS, 2020. For the 2050 estimate, the CBS (base case) prognosis from the seven sketched future scenarios was taken. 5 Wijzer in Geldzaken, 2020 6 CBS, 2007 Subdivision of First and Second Generation (%) 54% 46% 2021 First Generation (Western and Non-Western) Second Generation (Western and Non-Western) 56% 44% 2050 (expectation) First Generation (Western and Non-Western) Second Generation (Western and Non-Western)

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Figure 3. Dutch residents with a non-Western migration background have, on average, a lower level of education received.7
Figure 4. Dutch residents with a non-Western migration background have, on average, a weaker position on the labor market.8

Figure 5. Dutch residents with a non-Western migration background have, on average, a lower income and higher income uncertainty, which can manifest in debt problems and payment arrears.9
7 CBS, 2021: 2nd quarter 2021, percentage of 25- to 45-year-olds.
8 CBS, 2021: source 1 and source 2. Figure 4A: 2020, percentage of the population 15-75 years. Figure 4B: 2020, percentage of the labor force. Figure 4C: 2nd quarter 2021, people with a permanent contract as a percentage of the employed labor force with the same (migration) background.
9 CBS and KIS Wijkmonitor. Figure A: 2019, Figure B and C: 2018, number of persons per 1000.
Education Level
3.0%
4.6%
8.2%
53.8% 59.3%
40.6%
9.1% 9.1%
21.4%
No migration background Western migration background Non-Western migration background High Low A. Net labor participation B. Unemployment C. Permanent employment relationship 69.7% 67.4% 61.4% No migration background Western migration background Non-Western migration background 3.0% 4.6% 8.2% No migration background Western migration background Non-Western migration background 66% 63% 55% No migration background Western migration background Non-Western migration background
C. Number of people with
delay in healthcare premium
B. Number of people with debt problems
A. Persons with low/long-term low income
3.7%
7.3%
19.9%
1.4% 3.0%
9.8%
No migration background
Western migration background
Non-Western migration background
At least 1 year
Four years or longer
13
22
53
No migration background
Western migration background
Non-Western migration background
11
20
49
No migration background
Western migration background
Non-Western migration background

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Furthermore, Dutch residents with a non-Western migration background have, on average, a weaker labor market position. The net labor participation in this population group is on average lower than Dutch residents without or with a Western migration background (Figure 4A). Additionally, unemployment is higher in this group (Figure 4B) and fewer people have a permanent employment contract (Figure 4C). Given this weaker position on the labor market, it is also logical that Dutch residents with a migration background are relatively vulnerable to technological (digitalization, robotization) and economic (globalization, flexibilization) trends and developments and are more susceptible to the consequences of the corona crisis.10

The mentioned lower level of education and less favorable labor market position translate into an average weaker income position. Dutch residents with a non-Western migration background have, on average, a lower income and higher income uncertainty (Figure 5A). For example, Dutch residents with a Turkish, Moroccan, Surinamese, or Antillean migration background have, on average, about a quarter less disposable income than Dutch residents without a migration background.11 This average vulnerable income position seems to manifest in an average higher probability of debt problems and payment arrears (Figures 5B and 5C). There are also indications that the income differences between Dutch residents with and without a migration background are persistent and do not resolve quickly across generations.12 For example, children with a migration background achieve, at equal parental income, an average lower income position than children without a migration background. These differences have decreased only slightly over the last two decades. Another important source of financial vulnerability for specifically first-generation Dutch residents with a migration background is the often inadequate old-age provision due to an AOW gap and missing supplementary insurance. Because a large part of the first generation came to the Netherlands at a later age and thus did not live and work in the Netherlands for a longer period, this group has a significantly lower AOW entitlement, i.e., an AOW gap. If, additionally, a low second-pillar pension has been built up due to lower income and possibly more frequent unemployment, there is a high chance that the old-age provision is inadequate. Indeed, it appears that 40 percent of pensioners with a non-Western migration background live below the poverty line (Figure 6). An additional problem is that, especially by Dutch residents with a non-Western migration background, limited use is made of the Supplementary Income Provision for Seniors (AIO). The AIO supplements the income to the social minimum.13 In 2018, an estimated 19,300 Dutch residents were (potentially) entitled to AIO, but did not make use of it. Of these, 56 percent have a non-Western migration background.14 A final indication of the average higher financial vulnerability among Dutch residents with a migration background follows from the LISS panel: Dutch residents with a non-Western migration background seem to assess their financial situation more negatively overall than Dutch residents without a migration background. The LISS panel is an online panel of approximately 5000 households in which various aspects of daily life of the Dutch population are investigated. In this panel, among other things, it is asked how one would describe the financial situation of the household. With the caveat that the number of respondents with a non-Western migration background is relatively limited, it stands out that they describe their financial situation as less positive than Dutch
residents without a migration background. For example, Dutch residents with a non-Western migration background relatively often report taking on debts and/or having to draw on savings. Dutch residents without a migration background relatively often report having money left over (Table 1). 10 SCP, 2021 11 CPB, 2019 12 CPB, 2019 and ESB, 2021 13 See Social Insurance Bank 14 See CBS

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Figure 6. Especially older people with a non-Western migration background live below the poverty line.15
No migration background
Non-Western migration background
Debts are taken on 1.27% (46) 7.04% (24)
Savings are drawn upon a little 10.56% (383) 12.61% (43) Getting by exactly 18.73% (679) 35.19% (120) Having a little money left over 51.05% (1,851) 33.72% (115) Having a lot of money left over 18.39% (667) 11.44% (39) Total 100% (3,626) 100% (341)
Table 1. Answer to the question: 'How would you currently describe the fin

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