Over half of adults in the UK will be struggling with money, with the Covid-19 crisis having a profound impact on the finances of the UK population, the latest Financial Lives Survey from the Financial Conduct Authority has revealed.
Figures from the Survey, which benchmarks the financial situation of UK consumers, found that 27.7 million (53%) adults showed characteristics of vulnerability at the end of October 2020, including poor health, low financial resilience or negative life events. This marks a 15% rise on the FCA’s previous figures taken in February 2020, when 24 million people were considered vulnerable.
The FCA said the increase was largely as a result of negative life events, particularly redundancy or reduced working hours, which saw 15.3 million people affected in the year to October. Between the end of February and October 2020, over a quarter (27%) of all employees were furloughed, prompting the FCA to note that the pandemic has had a “disproportionate” impact on those of working age.
The findings showed that three in eight adults (38% or 20 million) experienced a worsening in their financial situation overall as a result of the pandemic, while 15% (7.7m) said it had grown a lot worse.
Between March and October 2020, the number of people with low financial resilience also increased by 3.5 million from 10.7 million to 14.2 million. Those with low financial resilience – those defined as over-indebted or with little capacity to withstand financial shocks – now account for just over a quarter (27%) of adults.
Meanwhile, 2.5 million adults have been informed that their job is at risk, while a further 28% say they may be made redundant. As a result, almost two fifths (38% or 19.6m) of adults expect to either struggle to make ends meet, see their debt levels increase, not be able to pay domestic bills or not meet their mortgage, rent or credit and loan commitments over the next six months.
Tom Selby, senior analyst at AJ Bell, said the figures lay bare the “profound and harrowing” impact of Covid-19.
Selby said: “This is unsurprising given the health, lifestyle and financial impact the pandemic has had on people’s lives, but nonetheless remains seriously worrying. The fact over 5 million people expect to turn to a food bank at some point is perhaps the most striking demonstration of the desperate situation many people are facing. It is also concerning that 8.1 million people anticipate taking on more debt to make ends meet, potentially pushing financial problems down the road and piling on debt interest payments in the process.”
Rachael Griffin, tax and financial planning expert at Quilter, believes more should be done to educate the UK population around finances from school-age.
Griffin said: “This year has been an extreme set of circumstances, but it is still hard to stomach such a significant increase in this population. The devastating situation of being in a financially precarious position is not shared equally across the population either. Younger and BAME populations are more likely to have become vulnerable this year. 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.”
Griffin continued: “Any approach needs to be twofold: short-term remedies for today and longer term reforms to prevent this in the future. If we are truly to increase financial wellbeing within the nation we need to give the population the tools to do so. It remains absurd that financial education is still not recognised as a vital part of the UK primary school curriculum. 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.”
However, the FCA’s data also showed a divided picture, with 48% (24.9m) adults unaffected financially by Covid-19, while 14% (7.5m) have seen an improvement in their financial situation overall. Comparatively, the retired population has been better insulated, possibly as a result of key sources of income such as the state pension and defined benefit pensions, remaining unchanged.
Selby added: “For those in this fortunate position, it is vital they take time to plan their finances and get a cash buffer in place if they don’t already have one. They should also aim to pay off any high cost debts they might have which will then leave them with a stronger foundation upon which to save for the future.”
