Over a quarter of UK adults are on the edge of financial disaster, according to a new report, with young people and ethnic minorities more likely to have become vulnerable.
According to the Financial Conduct Authority’s (FCA) Financial Lives Survey 2020, some 27.7 million people have “characteristics of vulnerability” such as poor health, low financial resilience or recent negative life events.
This was a sharp increase from 24 million in February last year, before the country went into its first lockdown, representing a 15% rise.
The watchdog, which surveyed more than 16,000 people between August 2019 and February 2020, said having one of these characteristics leaves more people open to financial harm.
COVID-19 has had a severe impact on financial resilience of Brits. Over the course of 2020, the number of UK adults with low financial resilience increased from 10.7 million to 14.2 million.
The initial research was followed by a subsequent survey conducted in October, with over 22,000 respondents, focused on the impact of the pandemic on consumers.
In October one in three (15.9m) adults said they expect their household income to fall during the next six months, while 25% (13.2m) expected to struggle to make ends meet.
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Many adults also reported that they were likely to cut back on essentials or to use a food bank, with 8.1 million expecting to take on more debt.
However, 48% of adults have not been affected financially by the COVID-19 health crisis, and 14% admitted to seeing an improvement in their financial situation.
“While there are some positives in the data, many of the findings are worrying,” Nisha Arora, director of consumer and retail policy at the FCA, said.
“Since the start of the pandemic, the number of people experiencing low financial resilience or negative life events has grown. The pain is not being shared equally with a higher than average proportion of younger and BAME adults becoming vulnerable since March. It is likely the picture will have got worse since we conducted the survey.
“Vulnerability remains a key focus for the FCA, and has been brought into sharp relief by the pandemic. We continue to work with the wider financial services sector, including businesses, regulators and government to support and protect consumers. We expect to finalise our guidance on how firms should treat vulnerable customers shortly.”
It comes as chancellor Rishi Sunak is under mounting pressure to do more to protect the UK economy and fund the fight against the pandemic in his budget on 3 March. He has already increased spending and cut taxes by over £280bn.
Becky O’Connor, head of pensions and savings, Interactive Investor, said: “People have been forced to sacrifice tomorrow in order to survive today. Financial difficulty can take years to unwind. Even once lockdowns have eased and life returns to something like normal, millions of households will continue to pay the price of the pandemic for years in the form of higher debt, lower savings and smaller pensions.”
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