What difference does debt advice make?

By Josie Warner, Senior Research and Insight Officer

A year ago, we released our first analysis of our tracking survey of clients designed to measure the outcomes they were experiencing three months after receiving debt advice. Today, we’re publishing our second in-depth report, ‘Paths to Recovery’. This time, we’re focusing on the experience of clients 15 months after taking advice. Within it, there’s much good news (and some challenges).

A quick re-cap

We survey clients three months, nine months and 15 months after advice in order to measure the impact that debt advice has on a client. However, we’re not only interested in understanding how clients are progressing with their debts.

This project aims to further our understanding of how debt advice impacts many aspects of a clients’ livelihood, such as their wellbeing and ability to build up effective financial resilience against any future income or expenditure shocks.

Below is our Theory of Change. The surveys designed were based on this Theory of Change, which describes the ideal outcomes we might hope a client would achieve:

Last time, we blogged on the main findings on what clients were experiencing three months after advice.

We reflected on three main points, namely that:

• Clients with positive budgets make better progress
• Vulnerable clients don’t always do worse (but it’s complicated)
• That clients who were making better progress with debts also made better progress in terms of their wellbeing

This time, ‘Paths to Recovery’ focuses on the experience of clients 15 months after advice. In our idealised scenario, we would hope that at this point, clients would be continuing to see improvements to wellbeing, building financial resilience and planning their financial future, and continuing to make progress towards becoming debt free.

Many clients are making progress

The good news is that that is exactly where some of our clients are. At 15 months, 12% are already debt-free and three out of four are making progress.

Additionally, 85% of those who had received a debt solution recommendation said it had either sorted their debt problem, or they were still following their recommendation.

However, just as we found at three months, the picture is still far from straightforward. At 15 months, 13% of people still rate their chance of becoming debt-free as poor and 6% say they have no chance of becoming debt free.

So, what is helping and hindering progress?

For StepChange, it’s good to know that clients highly rated the charity’s help and support — this was cited as helpful by 86% of clients. Other things that clients cited as helpful were keeping a closer eye on spending (63%), not using credit much or at all (59%), sticking to a budget (58%) and support from family and friends (40%).

Things that clients said hindered their progress were the high cost of living (cited by 49%), unexpected costs or expenses like car or house repairs (38%), a drop in income (28%), poor health (26%) and using credit (14%).

It’s striking that the things that hindered people’s progress were often connected. Specifically, the most common reason for using credit was to pay for costs associated with unexpected expenses like repairs, or the high cost of living (resulting in the use of credit to buy children’s clothes or shoes, for example).

Clients’ wellbeing generally improves over time

The reason we measure wellbeing is because it is such a strong indicator of whether the service we provide is actually helping people in other ways, as it shows us something about the correlation between the progress that people are making and how they are feeling.

This isn’t just nice to know; it matters because poor wellbeing may be associated with other issues such as poor physical or mental health, insecure housing and other characteristics that may be associated with higher costs to the public sector.

At 15 months, what we find is very much a continuation of what we saw at the three month stage: on average, the better the progress people are making with the debts, the better their wellbeing. We use both the ONS wellbeing measures and the Short Warwick-Edinburgh Mental Wellbeing Scale to measures this.

Both show the same direction of travel — clients’ wellbeing at 15 months after advice, is generally better than it was at the three and nine month stage, but for most clients doesn’t yet match the average of the UK population.

Clients are struggling to build up financial resilience

We define financial resilience as the ability to cope with income or expenditure shocks caused by life events, and to re-adjust to any longer-term change in financial circumstances without experiencing hardship or falling into problem debt.

While we wouldn’t expect many households at 15 months to have fully built up financial resilience for the future, it is worrying that very few clients have built up enough financial resilience to cope with an income or expenditure shock.

As an example, only 9% of clients have enough savings to be able to replace the fridge or washing machine in an emergency, despite four in five (78%) of clients saying this is important to them. At 15 months, most people’s budgets are still so very finely balanced that building up resilience for the future remains an aspiration rather than a work in progress.

Who is doing best and worst?

As a summary measure of who has the best and worst outcomes 15 months after advice, we have selected one question per topic area (progress with debts, wellbeing and financial resilience), which represents a key indicator. Our summary finds almost one in five (17%) clients are achieving good outcomes across all three key indicator measures.

Conversely, 9% of clients have poor outcomes for all key indicators. The remaining three quarters (74%) of clients are achieving at least fair outcomes on one of these key measures.

What should we make of these findings?

Crucially, the findings show us that overall, and for most people, debt advice does indeed help them towards resolving debt problems and showing improvement in their wellbeing. This is a vital indicator of the value of debt advice.

However, building financial resilience is an altogether different story. Even among those making good progress, this is the elusive part of the jigsaw. It’s hard to escape the conclusion that many households continue to live on a financial knife-edge, even after they resolve their debt crisis. This means that many are likely to need debt advice again in the future.

While as a charity we can, perhaps, be pleased that most clients would turn to us again for help if they needed it, it would be much better if they (and we) could have greater confidence that their financial health has been restored to a position where they could more readily weather some of the financial knocks of life.

Looking ahead, this means that we need to focus along with our industry partners, regulators and government on how we can all better set people up to succeed and thrive after debt. As well as our growing focus on early intervention, we also need to have an eye firmly fixed on the prize of genuine financial resilience.