Earlier this week the Financial Conduct Authority (FCA) warned that in October 2020, 27.7 million British adults classified as potentially vulnerable, an increase of 3.7 million from March. These increases are echoed by Ipsos MORI’s own Financial Research Survey (FRS), with further increases of an estimated 300,000 seen between October and December 2020. Both FRS and FCA figures display a growing disparity between consumers personal financial positions, which have been brought into stark focus; yet another consequence of coronavirus.
While low financial resilience (such as regularly being overdrawn or having low resilience to loss of income) remains the primary driver of vulnerability in Great Britain, 2020 has shown significant growth in the proportion of people classifying as potentially vulnerable due to a negative life event. According to FRS data there are now 4 million people now classifying as potentially vulnerable at least in part due to their working situation.
However, not everyone has seen their personal financial situation immediately impacted by coronavirus, with our latest figures indicating that an additional 667,000 adults felt they were able to save (a little or a lot) in December 2020 compared to March 2020. At the same time, consumers have increasingly been paying down debt, with consolidated Bank of England figures showing that, by October 2020, consumers had repaid £15.6 billion of consumer credit since the beginning of March, when the first lockdown occurred.
For many, this shift away from reliance on credit has been intentional. Our qualitative community FRS MoneyTalks, reveals that consumers with highs levels of borrowing yet low savings have realised the instability of their financial situation. As a result, many are looking to address their high financial gearing by looking to save more while also paying down any outstanding balances on credit cards, loans or overdrafts.
I have always known it, but what this situation has highlighted is the precariousness of high levels of debt. It's all fine and well until the music stops!
(Male, 35-44 years)
However, without encouragement and assistance from financial providers, this positive financial behaviour may be short-lived. It is becoming increasingly apparent from the FRS MoneyTalks community that consumers are foregoing treats in order to save as much as possible, with many now voicing guilt if they do spend on something they want.
I definitely want to spend much less as I have accrued a lot of lovely things and they did help me throughout the lockdown, but I do need to save more this year and stop spending as much. I’m feeling guilty about buying things to make myself happier, and I would like to save some money too.
(Female, 35-44 years)
With the Ipsos MORI Behavioural Science team showing that spending is so acutely engrained in people’s social identity, this level of financial restraint is unlikely to be sustainable and nor would the government and businesses want it to be. The economy needs us to spend, otherwise we are likely to face negative interest rates to stimulate the economy. In order to help consumers make this positive financial behaviour change truly long term, financial providers must find a way to help those that are able to save find the right balance between denial and gratification. It really is a question of balance - will that be the watch word for 2021?