More than a quarter (27%) of consumers have fallen into troubling patterns with their finances, with many having engaged in risky financial behaviour over the last year, according to new research from Moneyhub.
While the UK’s inflation rate has settled back down to the Bank of England’s 2% target, with Rachel Reeves announcing in her first speech as Chancellor Labour’s promise of immediate action to fix the economy and keep inflation as low as possible, over the last year the UK has seen the highest inflation for more than 40 years, putting pressure on people’s finances. This has led many to resort to riskier financial behaviours over the last year in order to get by. Financial risk involves individuals making decisions that might jeopardise their incomes or ability to pay a debt they’ve assumed.
According to Moneyhub’s research, 9% of people have exceeded their overdraft limit within the last year, and a further 8% have missed a credit card payment, and 7% have taken an additional loan out to pay off other debts.
Additionally, 5% have failed to pay their overdraft, 4% have defaulted on a loan and a further 4% have defaulted on a payday loan.
With costs high, many are resorting to short-term credit to support their everyday spending. Close to half of Brits have applied for either a personal loan, credit card, pay day loan or overdraft in the last year, with 29% doing so as they required additional support for day to day finances due to the cost of living. A further 21% said they regularly use such products to meet day to day expenses.
Of those people who have fallen into riskier financial behaviours, 6% felt that they shouldn’t have been approved for the product they received. With 27% of this group saying their income is not sufficient to afford the repayments. .
With many banks and financial services firms unable to see their customers’ full financial worlds, many of these concerning financial behaviours could be missed and grow. Open Banking tools enable banks and other firms to spot vulnerabilities much sooner, which allows for greater support to be provided to the customer before issues spiral.
Suzanne Homewood, Managing Director of Decisioning at Moneyhub said “A worrying number of people have fallen into concerning financial behaviours, and while we cannot change the macro-economic environment that’s prompting them, there are steps the financial services industry can do to better support customers.
“Indeed, many of these behaviours, like relying on short-term credit for everyday spending, could be anticipated and mitigated against if service providers were able to understand their customer’s world better.
“The ability to see this world through financial spending and behaviours, means that businesses can offer support and advice, before things spiral out of control, encouraging customers to make better financial decisions for themselves. Financial vulnerability can’t be easily eradicated, but it can be positively impacted by responsible actions like using data and technology that organisations like Moneyhub and the wider fintech community offer.”
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