Quarter of UK adults now have low financial resilience

According to a new report from the Financial Conduct Authority (FCA), 3.5 million additional adults were pushed into the category between March and October 2020.

Those most affected by changes in their financial situation since the last report in February are those in the 18-34 age range.

The FCA completed their Financial Lives survey in February 2020 but decided to run a Covid-19 panel survey in October 2020 to see how the pandemic had affected household finances.

Low financial resilience

An adult is classed as having low financial resilience if they have little capacity to withstand financial shocks such as a sudden reduction in household income or if they are over-indebted.

In February 2020, before Covid-19 hit the UK, 10.7 million adults were estimated to be in that category, with 7.2 million of those estimated to be over-indebted.

The FCA's October 2020 research shows 14.2 million adults were showing signs of low financial resilience following the first eight months of the pandemic, an increase of 3.5 million or 32.7%.

The largest proportional increase in the number of people struggling was in the 18-34 age range particularly and the 18-54 band more generally. Plus, adults who were in employment in February 2020 were affected more than the unemployed or retired people.

30% of UK adults expected their household income to fall in the six months from October, with that figure rising to 45% for adults in the low financial resilience category.

Struggling with commitments

The survey also asked respondents whether they were concerned they would not be able to make ends meet over the next six months. For example, they were asked whether their debt levels would increase or if they would be unable to pay domestic bills, rent, mortgages, loans or credit card bills.

38% said this was the case, amounting to 19.6 million adults. The proportion was higher in the 18-24 range (61%) and the 25-34 range (55%), while the figure was as low as 11% for the over 75s. If we look at those with low financial resilience, 72% expect to struggle with making ends meet.

There were some other stark findings too:

• 16% expect to take out a new credit product or to borrow more on an existing one
• 33% are likely to cut back on essential purchases
• 51% expect to cut back on or delay non-essential spending

This correlates with data we've been seeing from other sources including the warning from debt charity StepChange in November 2020 that 2.87 million are now at risk of debt problems in the long term due to Covid-19.

Similarly, Citizens Advice published research in December 2020 suggesting 600,000 additional households had fallen behind on their energy bills since February 2020.

What else did the research say?

Financial Lives gives us plenty of data about how people have handled their finances during the pandemic and what they expect to happen in the future.

These insights include:

• 17% of mortgage holders took up a mortgage payment deferral before October
• 19% of credit or loan product holders took a payment deferral
• 49% of those with payday loans or instalment loans took a payment deferral
• 1.7 million adults accessed debt advice between March and October 2020
• 28% used online or mobile banking more regularly
• 18% received at least one unsolicited approach that might have been a scam

Overall, the research published by the FCA shows many UK adults are in a more precarious financial position than they were in February 2020 before the pandemic hit.

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