How Covid -19 is affecting Personal Finances
The FCA has undertaken some extensive research into the impacts that Covid-19 has had on personal finances across the UK.
Unsurprisingly, the results are concerning and have revealed
- An increase in financial vulnerability
- A decrease in financial resilience
- Only limited take up of debt advice
- An increase in fraud and scams
- An increase in shopping around
Covid-19 has increased the number of people who are financially vulnerable, reversing a trend that had been underway for the previous three years. There are now some 27.7 million adults who now display the characteristics of vulnerability. The profound impact of Covid-19 has not affected the finances of all groups equally. 38% of all adults (or 20m) have seen their financial situation worsen. Groups that have been hit particularly hard are the self employed, adults with a household income of less than £15k per year and the BAME community. Conversely, some other groups have seen positive impacts in terms of decreased spending and debt reduction.
An additional 3.5 million adults now have low financial resilience, caused by Covid-19. Between March and October 2020, the number of people with low financial resilience increased from 10.7 million to 14.2 million. This now means that a quarter of all adults now suffer from low financial resilience. This is not really surprising given how low levels of financial resilience were even before Covid-19. Limited savings or borrowing commitments mean these people were at greatest risk if they suffered a drop in income.
Without action, Financial resilience is likely to remain low for some time. Nearly 16 million adults, or 30%, expect their household income to fall in the next 6 months. This rises to 45% for those who already suffer with low financial resilience.
Without mortgage and credit payments many would have found it more difficult to cope. However, helpful those these are, it must be remembered that deferred payments are themselves attracting interest and so increasing the size of the debt.
There has only been limited take up of debt advice amongst the very people who need it most. Those who have used the service found it valuable.
The biggest barriers to accessing these services appear to be;
Embarrassment in discussing their debt
Not wanting to face up to the problem and,
A lack of awareness of where to go for help.
It’s likely looking forwards that there will be even more need for debt advice with 13% of adults admitting they will need some help over the next 6 months.
Fraud and Scams
Worryingly, unsolicited approaches have increased during the pandemic. Over the past year, 22% of adults have received at least one unsolicited approach. These typically involve investments, pensions, and retirement planning. Financially vulnerable people are most likely to suffer loss from a fraud or scam.
Perhaps because there’s more time. Or perhaps because there’s more need, Covid-19 has increased interest in financial products. This is a good thing. An increase in shopping around for financial products can increase understanding. This in turn can lead to better understanding and decision making.
It’s no surprise that Covid-19 is having such a devastating impact on personal finances. Nor that this impact is being felt most by the financially vulnerable and those with low financial resilience. Sady, this is likely to be the case for some time as government support initiatives begin to unwind.
If you’d like to find out how we could help improve financial resilience and wellbeing please get in touch.