FCA Financial Lives Survey reveals that one in two adults are currently struggling with money
Figures from the Financial Conduct Authority (FCA) have exposed the extent to which the Covid-19 crisis is impacting the finances of adults in the UK.
The regulator's Financial Lives Survey, which benchmarks nation's financial resilience, showed that more than half (52%) are in some sense considered vulnerable (27.7m).
More than a quarter (14.2m) are considered as having ‘low financial resilience' - meaning over-indebtedness or levels of savings or low or erratic earnings - and 2020 saw this increase to 3.5 million UK adults, a figure expected to be significantly higher today
"This crisis needs to be recognised more fully by the government and steps need to be taken to ensure that we are building a more financial resilient UK population.
Taken from a survey in February last year and another in October, six months after the pandemic struck in March, the FCA data revealed that the percentage of the adult population suffering from poor health, low financial resilience or had faced negative life events was up 15% compared to February 2020 when 24 million were classed as vulnerable.
The study said that in October around one-in-three (15.9 million) reported they expect their household income to drop in the next six months, while a quarter (13.2 million) expected to struggle to make ends meet.
Food poverty was also reported with 5.6 million people saying they were likely to use a food bank, while 17.9 million said they could cut back on essentials.
FCA data also showed 8.1 million people expected to take on more debt as a result of the pandemic. However, 14% of UK adults said they had seen an improvement in their financial position.
Dave Harris, more2life CEO, said: "Financial vulnerability has arguably never been higher on the agenda than since the onset of Covid-19, and today's FCA report reaffirms how widespread this issue is across the UK. Indeed, the Covid-19 crisis has left over a quarter of UK adults with low financial resilience according to today's findings. Not only that but thousands of people's financial, mental and physical health has worsened, in some cases overnight, with many older households in particular facing job loss or faltering pension fund performance.
"Others will have been vulnerable long before the crisis hit, and the impact of the economic downturn has escalated their financial worries. As a result, we could see a worrying number of older people making short-term choices around unsecured borrowing to help make ends meet which have long-term consequences."
The data also showed that the financial damage is not shared equally across the population, with younger and BAME populations far more likely to vulnerable this year. "The fact the nation is in such a situation is a crisis in itself," said Quilter financial planning expert Rachel Griffin. "This crisis needs to be recognised more fully by the government and steps need to be taken to ensure that we are building a more financial resilient UK population.
"The FCA has indicated the importance of looking at vulnerability. Vulnerability policy for financial services companies is vital, particularly now. We also need a clear indication from the government on how they are going to help pull the population out of this situation. It is not enough for the Chancellor to proclaim that he cannot save every job."
According to Griffin, greater focus must be put on financial wellbeing tools. "It remains absurd that financial education is still not recognised as a vital part of the UK primary school curriculum," she said. "We know that money consciousness and attitudes are formed by the age of seven and yet we are not helping younger populations form a positive relationship with money.
"As the pandemic exposes more social and economic inequalities, financial education can act as an equalising force, positively affecting and improving a child's life chances by giving them a good grounding in financial matters from an early age."
PRIMIS' proposition director Vikki Jefferies agreed that better consumer education is needed and explained that experienced financial advisers can help provide suitable solutions such as income protection to help ensure clients remain resistant to ill-health or disability-related income shocks.
"What now needs addressing is the knowledge gap among consumers of the financial solutions that are out there to help - and this is where advisers will come into their own," she said. "Many borrowers may be more likely to resort to unsecured forms of lending to alleviate the pressure on their finances, for example. However, for many, this will not be the best solution over the long-term, so brokers need to play a key role in informing consumers about the alternative solutions that will be better suited to their circumstances. The same goes for products such as income protection, which many customers will be unaware of without the support of an adviser. I am confident that, over the coming months, we will continue to see brokers rising to the challenge and helping to improve the UK's financial health."
more2life CEO Harris pointed to equity release and later life lending as another alternative option for those who may be unaware of their availability.
"The likelihood is that many people may view unsecured loans as the best option if they are struggling financially when, in reality, other solutions could be better for them," he said. "However, many consumers remain unaware of alternative solutions, such as equity release and later life mortgages, and are simply not able to make informed decisions about their finances.
"The later life lending industry has a huge role to play in ensuring older consumers' financial security is being put first. The cooperation of advisers, lenders, trade bodies and other key players will be crucial to making sure that measures are in place to support older households in poor financial health, and that this demographic understands the solutions best suited to their short and long-term needs. As we navigate the ongoing crisis, I hope to see the industry continuing to work together to prioritise financially vulnerable customers and support them with their decision-making."