Major life events leave half financially vulnerable

More than half (52%) of adults aged 25-55 have experienced a major life event, such as redundancy, serious illness, bereavement, or relationship breakdown, in the last three years, according to new research commissioned by the Money Advice Trust, the charity that runs National Debtline.

These events often have significant financial consequences, with one in five people who experienced a major life event in the last year saying it led to problems such as falling behind on bills, struggling to manage money or taking on debt. Despite this, just 7% say they feel fully financially prepared if a similar shock were to happen in the next three months.

The findings form part of new research commissioned by Money Advice Trust in partnership with M&G and conducted by the University of Bristol’s Personal Finance Research Centre. The research, based on in-depth analysis of the FCA’s Financial Lives survey plus new polling and interviews with people who recently experienced a life event, examines how life events can affect people’s finances, why some individuals are better able to withstand these shocks than others and what can be done to support people to build more resilient personal finances.

The impacts of life events become even more severe when people face multiple setbacks. While 17% of people who experienced one life event reported financial difficulties, that figure rises to 29% for those experiencing two events and 40% for those hit by three or more in a short period.

The research shows that the financial impact of life events is not felt equally across society. While anyone can experience redundancy, illness or relationship breakdown, people on lower incomes are more likely both to experience these events and to have fewer resources available to cope with them.

The study found that factors such as existing debt, high housing costs, caring responsibilities, barriers to work, difficulties accessing social security benefits and relying on a single household income can all make it harder to withstand a financial shock.

As a result, what begins as a temporary setback can quickly become a longer-term financial crisis. The report highlights how people can exhaust savings, fall behind on bills and take on debt while trying to weather an initial shock, leaving them increasingly vulnerable if another life event follows before they have had the chance to recover. The wearing down of financial resilience by multiple events is clear, with 41% of people who have experienced three or more life events saying they were ‘not at all prepared’ for another major life event.

Self-employed workers are identified as being particularly exposed, with many lacking access to protections such as sick pay and redundancy pay, meaning a sudden loss of income can have an immediate impact on their finances. For example, only 11% of self-employed workers said sick pay would be a realistic safety net for them.

The Money Advice Trust is calling on government, employers and creditors to strengthen the financial safety nets available to people facing major life events, through improving protection for self-employed workers, strengthening sick pay and social security support, helping households build savings and expanding access to free debt advice so that people can access help before financial problems spiral into crisis. Specific policy recommendations include the introduction of sickness protection for self-employed workers, as well as a review of the adequacy of Statutory Sick Pay, which is currently one of the lowest in the OECD.

It also recommends expanded access to incentivised savings schemes such as Help to Save, with eligibility widened to include more low-income households. In addition, employers should offer payroll savings schemes. The removal of the five-week wait for Universal Credit and an increase in the Local Housing Allowance rate and an expansion of free debt advice services to narrow the gap between demand and supply

Steve Vaid, Chief Executive at Money Advice Trust, the charity that runs National Debtline, said “Every day, our advisers speak to people whose finances have been turned upside down by events they never saw coming. A serious illness, redundancy, relationship breakdown or taking on caring responsibilities can change someone’s circumstances overnight. This research shows these experiences are not exceptional. They are a normal part of life.

If they can, people typically use their savings, cut back spending and seek support from friends and family. But when those safety nets run out, or when a second setback follows the first, many are left exposed to debt and financial hardship.

“Government, employers and the financial services sector need to work together to strengthen the support available when life changes unexpectedly. No one can prevent illness, bereavement or redundancy, but we can do far more to stop those events becoming debt crises.”

Jane Rawnsley, Group Head of Corporate Responsibility, M&G plc, said “We are pleased to have supported this research, which highlights the challenges many people face when life changes unexpectedly. At M&G, we are committed to helping people build financial confidence by working with expert partners, strengthening support networks and helping build resilient communities.”

Sara Davies, Lead Author and Associate Professor of Household Finance at the University of Bristol said “The majority of people in the UK recognise the importance of building financial resilience. While there are things that people can do themselves, such as put some money into savings if they are able to, better structural safety-nets are needed to support people when life events inevitably happen.”