Around 23 million people have experienced a life shock in their household in the past two years. New research from StepChange Debt Charity finds that people who had experienced a life event in the last two years were three times as likely to be in problem debt than those who had not. This points to the need for a radical overhaul of protection mechanisms against life events.

StepChange’s new report marks the first stage of a major project designed to unpick the nature of the financial coping mechanisms that people try to use when unexpected life events happen, understand why they are not necessarily effective in helping people avoid problem debt, and constructively identify what needs to change.

The report says that there are gaping holes in protection, and to build financial resilience requires a rethink of mechanisms to protect against and manage the financial consequences of life events such as birth, death, relationship breakdown, illness, caring responsibilities and fluctuating employment. A YouGov survey finds that not only did just one life event increase the likelihood of being in debt, but also that the more life events people experienced, the more likely they were to be in debt.

People rely on a wide range of coping strategies to try to avoid debt when they experience life events. Collectively, these are failing. Few people have been able to save effectively, the tightening of the benefits system has reduced the scope of welfare safety nets, and large scale private sector solutions have not really emerged to fill the gaps. Applying for benefits; borrowing money from family and friends; using credit cards, overdrafts or high-cost credit; relying on statutory pay (suck as sick or maternity pay); cutting back on expenditure: these were all strategies that people used, but that did not necessarily result in them avoiding debt problems.

What is striking is that when people are using multiple coping mechanisms, this often seems to be associated with higher incidence of debt. This suggests that people may be desperately seeking support from a range of sources but finding this is ineffective. The more coping strategies people use, the more likely they are to be in difficulty. For example, among those using five or more of the commonly used strategies, 32% were in problem debt – four times as high as the 8% among those using two coping strategies, and just 1% for those using none. Among those using five or more strategies, another 42% showed signs of financial distress.

The findings raise obvious questions about the effectiveness of the welfare system as a safety net, but also suggest that businesses, creditors and employers all need to do more to build in more financial resilience to their products and processes. StepChange says collaboration is needed to understand what the characteristics are of people who do cope effectively with life shocks that put them into that position, to enable these to be replicated more widely. The next stage of the charity’s research will delve into trying to better understand ‘what works’.

Commenting on the first stage findings, StepChange CEO Phil Andrew said “This research really brings home the reality that most debt problems are triggered because of unexpected events in people’s lives. For individuals these are unpredictable, even though within society as a whole we know that such events are common. Dealing as we do with over 600,000 people a year facing financial problems, what we see being played out time and time again is that current mechanisms are just not proving effective in keeping people out of financial harm when life events do happen to them.

“The scale of the problem demands a coordinated approach. We know that many people, even those who are in work, are finding it hard to build up any level of protection against these common life shocks. We need policymakers to prioritise this issue and we want to work with them, and others, to identify how support can be improved to break the link between life shocks and problem debt.”

Currently three million people are in problem debt in Great Britain, with another 9.8 million showing signs of financial distress. In 2018, seven in every ten people who came to StepChange for advice said the primary reason they had got into problem debt was because of a life event or shock. Identifying “what works” in helping people cope after a life shock should therefore be a policy priority.