Covid-19 leaves over a quarter of consumers with low financial resilience

The Financial Conduct Authority (FCA) has released its latest Financial Lives survey (FLS), looking at consumers’ financial situations, the financial products they choose and their experiences of engaging with financial services firms.

The FCA concluded its FLS research in February, and ran an extra survey in October in order to understand the impact of the Covid-19 pandemic on the financial situation of consumers.

According to the October survey, there are now 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events. Having one of these characteristics means that these consumers are at greater risk of harm. This figure is up 15% since the FCA completed its FLS in February, when 24 million displayed characteristics of vulnerability.

Commenting on the findings, Nisha Arora, Director of Consumer and Retail Policy at the FCA said “The Financial Lives survey is fundamental to the work we do as a regulator, enabling us to hear directly from consumers across the UK.”

“While there are some positives in the data, many of the findings are worrying. Since the start of the pandemic, the number of people experiencing low financial resilience or negative life events has grown. The pain is not being shared equally with a higher than average proportion of younger and BAME adults becoming vulnerable since March. It is likely the picture will have got worse since we conducted the survey.”

“Vulnerability remains a key focus for the FCA, and has been brought into sharp relief by the pandemic. We continue to work with the wider financial services sector, including businesses, regulators and government to support and protect consumers. We expect to finalise our guidance on how firms should treat vulnerable customers shortly.”

The FCA found that the number of consumers with low financial resilience – meaning over-indebtedness or with low levels of savings or low or erratic earnings – has grown. Over the course of 2020, the number of UK adults with low financial resilience increased from 10.7 million to 14.2 million.

Highlighting the threat to people’s incomes from the pandemic, in October one in three (30% or 15.9m) adults said they expect their household income to fall during the next six months, while 25% (13.2m) expected to struggle to make ends meet.

To cope with the hardships they expected to face, many adults reported that they were likely to cut back on essentials (33% or 17.5m) or to use a food bank (11% or 5.6m); 8.1 million (16%) expected to take on more debt. However, 48% of adults have not been affected financially by Covid-19, and 14% have actually seen an improvement in their financial situation.

Over the course of the pandemic, the FCA has worked with the financial sector and consumer bodies to help protect consumers with measures such as mortgage and credit payment deferrals. The report reveals the impact these measures have had with one in six (17% or 3.2m) mortgage holders having taken up a mortgage payment deferral and four in ten (40%) of them reporting they would have struggled a lot without such measures.

The Financial Lives survey provides insight into the financial lives of consumers, which the FCA and others use to understand the experiences of consumers, including those who are most vulnerable to harm and ensure that the right protections are in place. This is something which has been especially important as the economic toll of coronavirus (Covid-19) has continued to mount.

The FCA surveyed more than 16,000 people between August 2019 and February 2020. This was followed by a subsequent survey, with over 22,000 respondents, focused on the impact of the pandemic on consumers, conducted in October.

Reacting to the findings, Richard Lane, Director of External Affairs at StepChange said “It is deeply concerning that levels of financial vulnerability are so high at a time when the pandemic is having such a devastating impact on people’s lives. Our own research has found 15m people have taken some form of financial hit since March, with nearly half falling behind on essentials or borrowing to make ends meet. With the end to measures such as the rental eviction ban, payment holidays and furlough on the horizon, it’s likely that vulnerability to debt, hardship and destitution will only rise without decisive intervention.’

“The FCA’s recent Woolard review has rightly highlighted the need for more support for those turning to high-cost credit after income shocks, but more can be done to protect this group of financially vulnerable people. Meanwhile, the Government must urgently set out how those affected by the pandemic – and particularly those in financially vulnerable positions – will be supported in the long term. Keeping the £20 uplift to Universal Credit would go some way to achieving this, the Government should also look to provide targeted funding that can enable households to exit safely from unmanageable coronavirus debt. By concentrating support in this way, it can reduce the rising financial vulnerability and avert the damaging impact of long-term debt on health, mental health and the economy.”