Stats Yearbook: What we already knew about the lack of financial resilience even before coronavirus showed us

By Josie Warner, Senior Research and Insight Officer

Today we launched our 2019 Statistics Yearbook, which provides a snapshot of the key trends and data based on clients who we first advised between January and December last year.

The data in this report is based on clients who required debt advice before the Covid-19 outbreak. However, the findings highlight the financial pressures that many households across the UK were already facing prior to the start of the pandemic. Last year alone, more than 600,000 new clients contacted the charity, equating to one new person every 49 seconds.

Additionally, the average debt per client at £14,219 has been rising, clients are overwhelmingly likely to be renting their homes, and many struggle to afford to pay household bills such as council tax, electricity and gas.

With unprecedented times ahead, it’s essential that policy makers put the correct steps and safety nets in place — both short-term and long-term — in order to support households.

The yearbook only provides a very top-line look at our client data, so outlined below are some of our key findings with additional insight that didn’t make it into the Yearbook itself:

Three quarters of clients required debt advice due to life shocks

The findings in this latest report support much of our existing research about the harmful impact that life events can have on household’s financial situations, particularly if the appropriate safety nets aren’t in place to provide effective support.

Our Life Happens report, published in July 2019, shows that experiencing a life event in the previous two years makes you three times more likely to be in problem debt.

Three quarters (75%) of clients cited a ‘life shock’ as their main reason for problem debt in our latest statistics yearbook. This could be due to a reduction to income (18%), unemployment or redundancy (16%) or experiencing an illness or injury (16%) among other causes.

We have seen the proportion of clients for whom a reduction to their income was the main reason for debt rising in recent years.

The coronavirus situation illustrates all too starkly the findings that we have previously revealed in our Client Outcomes project and Life Happens report, that an increasing proportion of households do not have the financial resilience required to cope with the financial impact of life events.

One third of clients have negative budgets

Our latest statistics also show the financial fragility that many clients were already dealing with in 2019. Almost one third (30%) of new clients have a monthly budget where their expenditure is higher than their income after receiving budgeting advice from StepChange.

Clients in negative budgets have on average smaller debts and are more likely to have lower incomes; 32% of negative budget clients have an annual income of less than £10,000, compared to 16% of all clients.

Women in debt

In recent years, we have seen an increasing proportion of women contacting us for advice. In 2014, 57% of new clients were women, but this has risen over a five-year period by 5 percentage points to 62% in 2019.

The report also finds that women are more likely to have lower unsecured debt levels than men (£12,815 women vs £16,243 men), but more than four in ten (44%) women were behind on at least one household bill at the time of advice in 2019, compared to a third (33%) of men.

Alongside a growing proportion of women, we’ve also seen a rise in the proportion of single parents, the vast majority of whom are women (87%).

In 2015, one in five (20%) new clients were single parents, but this has now risen to almost one quarter (24%). To put this into perspective, just 6% of the wider UK adult population are single parents.

Credit cards are the most common form of debt

Continuing a long-term trend, the proportion of new clients with credit card debts continues to slowly rise and in 2019 credit cards remained the most common type of debt.

Seven in ten (69%) new clients having an average of 2.7 credit card debts each. Credit cards account for one third (33%) of the total number of debts owed by clients.

In terms of other debts, just under half of clients had at least one overdraft debt at the time of advice, owing nearly £1,500 on average. We have also seen the proportion of new clients with store card debts (13%) and catalogue debts (35%) rise since last year.

Additionally, despite many payday loan firms withdrawing from the market, our latest stats highlight that around one in six clients had a short-term high cost credit debt at the time of advice.

What next?

Although we were contacted by more than 1% of the adult population last year, our client statistics only paint part of the picture.

We know that 3 million adults across Great Britain are in problem debt, and 9.8 million are showing signs of financial distress.

In addition, we know that very few households have the resilience in order to deal with income or expenditure shocks.

We welcome longer term steps that regulators such as the FCA have taken on persistent credit debt and overdrafts, as well as the Government’s commitment to a Breathing Space scheme.

However, households need urgent support in the short term as well as additional longer-term support from policy makers in order to overcome this crisis.

As a charity, StepChange is asking all providers of services and credit to ensure affected customers are provided with additional forbearance at this time.

Longer-term, it is essential that households are provided with the means to build up suitable financial resilience in order to deal with any life shocks that may occur in the future and ensure suitable safety nets are in place.

There will be challenges about how forbearance and support currently being offered will be unwound long term, and we are acutely aware that the kinds of services and support that people will be looking for from us over the short to medium term will not just be the full, comprehensive debt advice that people typically turn to StepChange to receive.

We have already been using data — not just our clients’ characteristics, but also information about how people are using our website for example, to help inform how we flex and morph our service in line with client needs as we navigate the uncharted territory in which we are all now operating.