Are You Financially Vulnerable?

Financial security can be elusive. Even for the most diligent, informed, household money managers, responding to unanticipated expenses and broader economic shifts can result in financial instability. When cash flow falters or unexpected events generate financial pressure, fast resolution leads to the best outcomes. But stabilising personal finances isn’t always an easy task. For Britons living from paycheck to paycheck, with little in reserve, recovering from financial setbacks can feel like an insurmountable challenge.

Protecting yourself from financial distress is a lifelong undertaking, requiring attention to wide-ranging money matters. Do your outgoings balance with your income? Are you making strides toward closely-held personal financial goals? Is your pension and retirement scheme adequate to provide for your family, after you’ve left the workforce? These and other important concerns comprise an increasingly complex suite of financial responsibilities facing UK families. Regrettably, it is thought many of the UK’s households are financially vulnerable.

Surprising Share of UK Adults Found to Be At Risk

Whether you are looking at macro trends, broadly influencing UK economics, or examining micro-economics related to personal finance; current conditions reflect some of the financial challenges facing the population. Though unemployment remains low, and things could be much worse leading-up to the Brexit transition, a significant share of the population may be standing on shaky ground. One Financial Conduct Authority (FCA) survey, undertaken near the end of last year, illustrates exactly how tentative financial security is for some UK families. According to the survey results, half the UK population may be financially vulnerable.

The FCA’s Financial Lives survey consulted 13,000 individuals, divining the financial status of UK households. Participants’ responses shed light on conditions and perceptions across the UK, including the following takeaways.

Based on their responses, it is thought nearly 8 million residents may be struggling with over-indebtedness. For consistency, the FCA defines over-indebtedness as meeting one or both of these negative criteria:

1. Keeping pace with household bills and credit obligations is a heavy burden
2. Payments have been missed for a credit or domestic spending commitment during any three of the prior six months

More than 4 million adult consumers have been rejected for a financial product during the two year period leading up to the survey. The statistic doesn’t necessarily mean doors are closed for applicants with bad credit. On the contrary, various funding sources provide needed financing, without formal credit checks. However, some Britons’ limited access to credit does illustrate how financial relationships have changed since the global financial crisis.

Using survey responses to extrapolate national trends, FCA concluded approximately half the UK population, or 25.6 million residents, show one or more of the hallmark characteristics associated with financial vulnerability. Shining a light on the worst cases, the survey also found that 1 in 6 UK residents would have a hard time coping with even a £50 increase in their monthly domestic obligations. Reading between the lines, it’s clear that many Britons are living from payday to payday, without adequate reserves to help them overcome cash flow challenges.

While vulnerability or perceptions of being at risk are present across all age groups, members of the younger generation appear to be in an even more precarious position than their seasoned counterparts. Only 1 per cent of those over 65 identified themselves as being “in difficulty.” Among young people aged 25 to 34, on the other hand, 13 per cent found themselves to be “in difficulty.” The younger generation also reported having set by insufficient savings at a higher rate than older Britons, with 19 per cent admitting they held nothing in reserve. 30 per cent of individuals in the 25 to 34 age bracket shared they had saved less than £1000.

Despite 50 per cent of the population showing symptoms of financial vulnerability, many won’t experience harm – barring a major financial downturn. Still, with so many at risk, there is bound to be fallout for a significant share of the population, should economic conditions deteriorate leading up the final stages of the Brexit transition.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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