Last week, StepChange released its Statistics Yearbook, which provides an overview of their client base of half a million adults in the UK who are struggling with personal debt. In this post, we comment on the findings and offer a few thoughts on how advice can be a catalyst for building financial resilience and well-being.
Although more than half of those seeking advice are in some kind of employment, StepChange clients have an average income of just £16,000 and an average of just £55 left at the end of the month. It’s a picture that illustrates the precarious foundation of household finances in the UK.
The findings of the Yearbook that concern us are:
- Income or employment change is the biggest cause of falling into debt, with 1 in 5 clients falling into debt due to losing their job;
- StepChange Debt Charity clients have average unsecured debts of £13,900, with 65.7% using credit cards, 55.1% with overdrafts, and 15.7% having taken out payday loans; and
- The number of clients with arrears on household bills has also grown – in particular arrears in Council Tax, TV license and water bills.
Employment instability is clearly making it harder for people to manage on fluctuating incomes, which is especially difficult where a person’s household outgoings have to stay fairly static. It also poses difficulties for advice services, since debts are often seemingly down to matters outside of money management or budgeting improvements.
That’s why when it comes to designing advisory services that are fit for purpose we must be mindful of the complex needs of people in debt.
At Toynbee Hall we provide debt, benefits, and legal advice to some of the UK’s most deprived communities and so we know all too well how the combined impact of welfare reform, the high costs associated with some forms of credit, and rising living costs are chipping away at the means with which households in the UK can boost their financial resilience.
The end result of this, of course, is a cycle of debt that can be hard to break. And the culture of needing to “protect one’s credit score” all too often means people leave asking for help too late, and may even borrow to make payments rather than admit their debt is unmanageable.
We also know that access to debt and benefits advice, as well as other types of advice, form an essential part of the financial health landscape, helping people to get back on track and in control of their finances. But advice at the point of crisis is only one part of the response.
A key challenge for the sector is ensuring our service design, including our relationships with funders and partners, actively addresses the link between crisis and long term well-being. The advice process can provide the catalyst for greater financial resilience through integration of more holistic, needs-led services that address financial health in the round.
To that end, we need advice provision that can help people in financial situations given to unforeseen circumstances so they don’t fall into an endless cycle of problem debt. Not least because we know that money worries and non-financial issues such as wider health are closely linked (as the Money Advice Service (MAS) has previously pointed out, more than half of those accessing debt advice funded by them have mental health issues).
So tackling financial worries is essential for building a safer, healthier and more secure society overall.
This is why we use our own MAP Tool, a financial health needs assessment and impact measurement tool, as a way to assess an individual’s needs (i.e. identify those things that might be creating barriers to poor financial health, including more complex needs that aren’t related to finance), and track the impact of advice services and support.
Organisations can then also use the data gathered to better understand the needs of service users; inform service delivery and design, and forge more strategic partnerships – in the way we’ve done through our Community Money Mentors work, a financial education and peer support programme that we have run successfully in Tower Hamlets for the past three years and are now extending across London and developing a digital version for national rollout.
We are not pretending this is easy, but we need to accept that personal financial crises are often more complicated than they first appear. To be able to help we must understand as many crisis trigger points as possible and build financial resilience around the unforeseen.
Download the Stats Yearbook from our knowledge bank.
Find out more about the MAP Tool here.