New CAP report asks if debt relief is enough to help people sail safely ahead

When Richard’s marriage broke down, he became homeless, was diagnosed with a tumor and lost his job, all in quick succession. He found himself sinking fast and unable to plug the holes that were letting water in before a new one appeared.

Debt advice threw him a lifeline which pulled him back above the water, but not for long.

‘I felt like I was in a sinking ship and I was putting plywood in different places but the water was still coming in. I was still sinking.

Without the debt, there has definitely been a respite. It has taken some of the load away from me and given me the ability to start thinking straight.

But I’m stuck. It’s really difficult as I can’t work with my health issues. I’m not asking even to be able to live comfortably, it’s just about surviving. Even that’s too difficult.’ — CAP client, Richard

CAP’s latest report, Shipshape or sinking ship?, investigates the factors that harm and limit the wellbeing of people in financial difficulty.

Financial and mental wellbeing are both essential to allow us to feel secure, in control and connected to others. Without these central planks it is impossible to leave problem debt behind and stay afloat in any storms the future will bring.

Setting sail: why financial wellbeing matters

Financial inclusion — having access to financial products and basic financial knowledge — is like having a boat. You can set sail with a small boat, but it’s not going to stop you from being shipwrecked if you face any storms.

Financial wellbeing is concerned with the structural integrity of the boat, with making sure you can sail high enough in the water to make it safely to your destination.

It’s our financial wellbeing that allows us to have control over our day-to-day finances, meet future goals, and have both the financial freedom to enjoy life and the capacity to absorb shocks.

Being in problem debt makes it impossible to navigate a safe course to your intended destination. All attention and resources are diverted to bailing out water as the bills come in thick and fast. All elements of someone’s financial wellbeing are wiped out.

Likewise, there are myriad ways that being in debt impacts someone’s mental wellbeing and vice versa. Debt causes social isolation and is known to reduce productivity at work, reducing how optimistic and useful people feel.

Mental wellbeing is a state ‘in which every individual realises his or her own potential, can cope with the normal stresses of life, can work productively and fruitfully, and is able to make a contribution to his or her community.’ (World Health Organisation, 2001)

Shipshape or sinking ship? CAP client’s financial wellbeing

We surveyed nearly 900 people who were either beginning to address their debts with advice from CAP or were currently in a Debt Management Plan.

The results showed that debt advice helps people increase financial wellbeing, especially ‘present security’ and ‘future freedom’. 30% rarely or never felt like they were now struggling financially or that they would never have the things they wanted in life because of their money situation.

However, the majority still answered negatively to indicators of financial wellbeing. 51% always or often felt their finances control their life, 47% rarely or never had money left over at the end of the month, and 42% always or often felt concerned that the money they had saved will not last.

The average mental wellbeing score of CAP clients was also five points lower than the average for the UK population, at 21 out of a maximum of 35. The biggest contributors to this were rarely or never feeling relaxed (30%), not feeling close to other people (23%), and rarely or never feeling useful (23%).

What harms financial wellbeing?

Becoming debt free is not an automatic switch between poor and good wellbeing. There are substantial social and economic constraints that stop people from achieving high levels of wellbeing, which prolong feelings of stress, not being useful or not being close to others.

Some groups fare worse than others. Insolvency clients, those on the lowest incomes, younger age groups and people subject to particular welfare policies all have lower financial and mental wellbeing.

People with an agreed debt solution had higher financial and mental wellbeing scores, but some solutions bring greater gains. This is particularly the case for people able to repay their debts through a Debt Management Plan whose average financial wellbeing score was 49 out of 100, whereas insolvency clients had more modest gains, with an average score of 42 out of 100.

Deficit budgets: taking on water

People in need of an insolvency solution are more likely to have a deficit budget, which means they do not have enough money coming in each month to cover their essential living costs. In many cases there is little opportunity for immediate change in their situation or they require specialist advice or significant support to take these actions.

Where someone has a deficit budget, their financial and mental wellbeing is significantly impaired — they simply cannot keep their head above water.

35% of those with scores in the bottom quarter of the financial wellbeing scale have regularly gone without two or more basic necessities (including food, lighting, heat, basic toiletries, appropriate clothing for the weather).

Going without food or leaving bills unpaid has a significant impact on other areas of life, such as being unable to keep in touch with loved ones or use public transport to get to health appointments. The daily experience of not having enough is also known to have a cognitive impact, whereby the scarcity effect limits cognitive capacity, and also leads to increased negative feelings.

Social security: dragged down instead of anchored

The social security system is a major driver of deficit budgets and lower wellbeing. 22% of CAP clients in receipt of social security receive less than their entitlement because their payments are reduced by welfare policies or debt repayments.

While the social security system intends to provide a vital lifeline to allow people to stay afloat financially, in reality it can drag people under rather than anchoring them during tough times as intended.

People subject to the benefit cap have the lowest average financial and mental wellbeing scores of all CAP clients.

Many people are also subject to multiple policies, the impact of which is not assessed holistically. As a result, more people subject to welfare policies, including the benefit cap and local housing allowance, experience destitution and are forced to borrow for basic necessities.

80% of CAP clients subject to the benefit cap borrowed money to pay for food, clothing or other living costs.

How debt is collected from the social security system is also important. People with Universal Credit advance repayments taken from their social security payments have an average financial wellbeing score seven points lower than the average for all CAP clients.

48% of CAP clients repaying a Universal Credit Advance are often or always still struggling financially

Setting a course: maximising financial wellbeing

A focus on wellbeing brings to the surface other outcomes beyond bringing debts under control that are important to help someone set a course and sail higher in the water. The debt advice sector and creditors have a key opportunity to improve people’s financial health as well as helping them deal with debts.

However, debt advice alone cannot set people up to sail safely ahead. All forms of wellbeing are compromised by a lack of income and social security, which are essential to underpin health and set a course for positive futures.

‘It’s very difficult. If a bill is higher one month it completely throws you off and has a knock-on effect for the next month.

I don’t know what else I could sacrifice. There is nothing else. I don’t know what I should do.’ — CAP client, Richard

We need action to better understand the links between poor wellbeing and the social and economic landscape, and tackle the reasons some people continue to take on water despite continually working to plug the holes as best they can.

Read our recommendations in Shipshape or sinking ship? Problem debt and the effect on a person’s financial and mental wellbeing.

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