Credit, Collections & Insolvency News
New research by Hargreaves Lansdown has found that the financial resilience gap has widened as with the debt crisis impacting low earners.
The debt position of the lowest fifth of earners has deteriorated since the onset of the pandemic, but improved for everyone else.
Since the onset of the pandemic, there has been a rise in debt arrears. The lowest earners are most likely to be in arrears – more than a quarter of them are behind on payments. Arrears has also increased at four times the average rate.
The research has also highlighted a rise in debt anxiety. Overall, 19% of people have debt worries, but this rises to 37% of the lowest earners. It has fed into the growing resilience gap between higher and lower earners, which has widened by 4.5 points since 2019.
Overall the research concluded that financial resilience fell in 2023, after the cost of living increased 18.4% in two years.
Sarah Coles, Head of Personal Finance, Hargreaves Lansdown said “Life got harder in 2023, dealing a real blow to our financial resilience. The new edition of the HL Savings & Resilience Barometer found that overall resilience fell 0.5 points to 60.9 (out of 100). It’s still above pre-pandemic levels, but a third of the pandemic gain has been wiped out.
“Relentlessly rising prices for well over a year have taken a toll. It can be difficult to see the overall impact of rising prices when we look at today’s inflation figure. However, the Barometer shows the cost of living has increased 18.4% in the past two years.
“This hasn’t been felt evenly across the income spectrum, so the resilience gap between higher and lower earners is widening. For higher earners, life has actually been getting easier. The highest fifth of earners have seen the proportion scoring ‘good’ or ‘great’ for overall financial resilience rise from 77% in 2019 to 86% at the end of 2023. Meanwhile, lower earners are still being clobbered by the cost-of-living crisis. The lowest fifth of earners with ‘good or ‘great’ scores fell from 3% to 2%.
“Lower earners were less able to build up lockdown savings during the pandemic. They were also less likely to have investments or own property – both of which increased in value – so by the end of the peak of the pandemic they were worse off.
“As we emerged from one crisis, we were then plunged into another, and the rising cost-of-living has taken a toll on the resilience of lower earners too. They already had less room in their budgets, but were hit harder by rises in the cost of the essentials – including a 23.9% increase in the cost of food and non-alcoholic drink.
“Increasingly, they have spent any savings and cut every cost, and have run out of road. The debt position of lower earners has deteriorated since the onset of the pandemic, while for everyone else it has improved. The debt scores for those on lower incomes are significantly worse than they were before the pandemic, falling 3% – compared to a 2% rise in the debt scores of higher earners.
“Debt anxiety and arrears are a particular concern. More than a quarter (27%) of the lowest earners are in arrears, while 37% have debt worries. It’s easy to see why, because their debt repayments (excluding mortgages) are painfully high compared to their incomes. The lowest fifth of earners have average debt repayments of £168 a month, compared to £141 among the second lowest fifth, and £315 among middle earners.”
