Over a quarter of adults in Britain now have low financial resilience as a result of the Covid-19 pandemic, official figures show.
The Financial Conduct Authority (FCA) said it has conducted research which shows 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.
According to the FCA, having one of these characteristics means that these consumers are at “greater risk of harm”.
The findings are from the FCA’s latest Financial Lives Survey (FLS), which looks at consumers’ financial situations, the financial products they choose and their experiences of engaging with financial services firms.
The 27.7 million estimate is up 15% since the FCA completed its FLS in February, when an estimated 24 million people displayed characteristics of vulnerability.
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 15.9 million) 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.
However, 48% of adults have not been affected financially by Covid-19, and 14% have actually seen an improvement in their financial situation.
Nisha Arora, director of consumer and retail policy at the FCA, said the FLS research is “fundamental” to the work her organisation does as a regulator, “enabling us to hear directly from consumers across the UK”.
She said: “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 [black and ethnic minority] 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.”
Vikki Jefferies, proposition director at PRIMIS Mortgage Network, described the FCA analysis as ‘alarming’.
She said: “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. 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.”
Dave Harris, CEO at equity release lender more2life, said that 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.”