Understanding the impact of Covid-19 on those in financially vulnerable circumstances
- 09 August 2020
Living in financially vulnerable circumstances is a very real problem and this vulnerability has only heightened as a result of the Covid-19 pandemic. The Financial Conduct Authority (FCA) report that almost half of the UK population (24.1 million people) currently display one or more characteristics of vulnerability.
The Money and Mental Health Policy Institute released their Income in Crisis report last week which explores how the pandemic is affecting the living standards of people with mental health problems. (see report) 8.7 million UK employees have been furloughed during the pandemic whilst others have had not had their contracts renewed or have been made redundant. The Department for Work and Pensions (DWP) report that they’ve received 2.9million new claims for Universal Credit. It is clear that this pandemic is having a financial impact on the many not the few.
Pressure on finances can create financially vulnerable circumstances. With many workers having been furloughed, taken a 20% pay cut, or having been made redundant, many of us are feeling the financial pressures. Our ability to save for “a rainy day” has been affected and it’s now been ‘raining’ for almost five months so savings (if they existed) are being exhausted. Back in 2015, the Money Advice Service reported that almost half of UK adults do not have enough savings to cover an unexpected bill of £300 or more.
The Money and Mental Health Policy Institute report revealed that people are already cutting back on their expenditure on both essential and non-essential spending and within their Research Community people told them that cutting back on essentials included food with families “skipping meals, eating low-cost foods with lower nutritional value or eating only one meal per day”. In addition, more than a quarter of participants have missed a bill or debt repayment and 1 in 5 had already missed rent or mortgage payments.
Government support has been very welcome with the Coronavirus Job Retention Scheme (CJRS), the increase in Universal Credit and the speeding up of the process from application to receiving a payment has helped to keep families afloat. However, these support mechanisms are ultimately going to be withdrawn, with the first step from August 1st when employers begin contributing towards furlough payments.
The Money and Pension Service reported in a webinar with the Money and Mental Health Policy Institute earlier this week that they are anticipating that 8 million UK residents will need free debt advice within the next year. They also advised that they’d secured funding of £37.8m to provide this advice. Whilst that may seem like a large sum of money, it equates to just £4.73 of funding per person which suggests that delivering the required support is going to be challenging.
Whenever we consider financial vulnerability, we must also consider mental health as there is a clear link between mental health and financial worries. The Royal College of Psychiatrists report that 1 in 2 people with debt also have mental health problems and that in 1 in 4 with mental health problems are also in debt. Mental Health UK confirmed that 1 in 4 of us suffer with mental health issues during any given year. This means 1 in 16 of us will find ourselves in financially vulnerable circumstance whilst living with a mental health condition. In a customer database of 500k all things being equal you could expect to find 31,250 such customers within your customer base.
Meanwhile many businesses are also struggling to re-emerge or reinvent themselves in the Covid era. The staff of those organisations are also the customers discussed above and that’s something we should keep front of mind. This time of uncertainty has presented us with an opportunity to completely review our businesses – are they fit for the new normal? I encourage you to make and take time to understand the needs of your customers and how you can build the ability to support those needs into your business models. Without customers your business may not survive. With well supported customers you’ll have a better chance of acquiring new customers, retaining those you have already acquired and building brand loyalty and advocacy which can reduce your costs in marketing, customer service and operations.
If you are looking for help and don’t know where to start, the FCA released a paper on July 29th regarding what they’re doing to ensure that vulnerable customers are treated fairly. In addition, they’ve released draft guidance to help organisations to do more to support vulnerable customers (read the draft guidance here).
If you need additional support with the development of your policies towards supporting customers in vulnerable circumstances or training your front-line staff on how to recognise the customers and offer reasonable adjustments, then please get in touch. I’ve co-chaired the DMA’s Vulnerable Working Party and been running training Masterclasses since 2016.
Read more here to find out more.