Nearly half of UK adults now living in financially vulnerable circumstances
- New two year segmentation study shows 20.3 million people are now living in financially vulnerable circumstances across the UK, up by 16% from 17.5 million in 2022
- Causes of financial vulnerability range from ill health, unstable incomes or a lack of savings to life events like losing a job, bereavement or a relationship breakdown
- Number of people with reasonable incomes while juggling high levels of debt has risen by 59% to 3.5 million, as 1.3 million who were not previously struggling turn to unsecured loans and buy now pay later to stay afloat
- Younger adults who borrow regularly are the second most impacted group, with numbers up 45% – amplified by higher rents and one in five of this group now on zero hours contacts
- Use of food banks has increased from 11% to 15%, as half of adults in financially vulnerable circumstances (50%) say they cannot afford to eat a healthy, balanced diet
- There’s a huge opportunity for the financial services sector to work together to boost financial inclusion for people in vulnerable circumstances
- Resources from the study are freely available for providers to use to better understand people in financially vulnerable circumstances, and design products and services to meet their needs
Our latest customer segmentation research with Trajectory and CACI reveals almost three million people have fallen into financial difficulties over the last year, with 44% of UK adults now living in financially vulnerable circumstances.
Without safety nets like credit, insurance or savings, many risk being tipped into problem debt by everyday events or unexpected expenses.
As a result, people face paying more just for being poor, or being excluded from financial services altogether, without access to mainstream products and services which others rely on.
Rising levels of debt and insecurity leave millions more at risk of financial exclusion
Our segmentation research looks at six groups of adults living in financially vulnerable circumstances. Their varied experiences show how financial vulnerability transcends age, class, occupation and other social boundaries.
The number of homeowners or renters who are managing higher than average, long term debts from multiple sources has risen by 59% to 3.5 million people over the last year. This trend has affected 1.3 million people who were not previously struggling financially.
Many people in this group are using personal loans to cover rent or mortgage payments, taking out high-cost payday loans, and are struggling to manage their debts due to stigma or lack of financial awareness.
The second biggest rise has been among younger adults, at an early stage of their financial journey, who are borrowing regularly and prevented from building up their savings by rising costs. This group now comprises 1.9 million people and has grown by 45% in the last year alone.
One in five of this younger group are on zero-hour contracts, and the group as a whole are more likely to be using buy now pay later (BNPL) and short term credit to top up variable incomes.
Our study shows the two most vulnerable groups have both grown over the last year. The number of low-income families with very limited savings has grown by 5% to 3.8 million, with many of this group living in poverty.
Worryingly, they have been overtaken by the number of families in a ‘crisis position’ where they rely on as much credit as they can access to afford necessities. This group has grown by 12% in the last year to 3.9m.
Table 1: The modern face of financial vulnerability in the UK (most financially vulnerable first)
| Groups living in financially vulnerable circumstances | People – 2023 | People – 2022 | Change |
|---|---|---|---|
| Segment name: Forgotten families Low-income families with very limited or no savings, falling behind on essential payments like rent and utilities | 3.8 million | 3.6 million | 5% |
| Segment name: Credit crisis families Families in a ‘crisis position’, including many in social housing, in a cycle of credit and debt to afford necessities | 3.9 million | 3.5 million | 12% |
| Segment name: (Un)Golden years Pre/post-retirement adults, often with health conditions, a lack of income from work and increasingly low savings | 2.8 million | 3.1 million | -8% |
| Segment name: Unsteady starters Younger renters with flexible or volatile incomes, who are not yet ‘established’ financially and regularly rely on loans | 1.9 million | 1.3 million | 45% |
| Segment name: Squeezed and sliding Homeowners and renters with lower incomes and are squeezed by rising housing, childcare and other costs | 4.5 million | 3.9 million | 15% |
| Segment name: Difficult debts Renting families juggling high levels of long-term debt from multiple sources | 3.5 million | 2.2 million | 59% |
Our study also uncovers evidence that the key drivers of financial exclusion are becoming more visible in the everyday experiences of families and households across the UK.
Its findings highlight how savings have become a primary form of income for many households, with debt repayments mounting and growing reliance on food banks for sustenance.
Significant numbers of people are already showing signs of having to survive outside of the financial services ‘mainstream’. More than one in five adults (22%) living in financially vulnerable circumstances have tried to obtain new credit over the last year and been turned down, increasing the risk that they will turn to illegal money lenders or loan sharks in search of support.
Table 2: Growing signs of financial exclusion among adults in financially vulnerable circumstances
| Drivers of financial exclusion | Evidence from Fair4All Finance’s research |
|---|---|
| Problem debt: Where people are underwater with their finances month to month, behind on at least two credit commitments consistently | People in financially vulnerable circumstances are increasingly delaying the impact of owed payments and bills: 26% have used Buy Now Pay Later products in the last six months, up by nine percentage points from 17% in 2022. |
| Resilience: Low savings levels and a lack of insurances meaning that unexpected bills hit harder | Nearly three in five (59%) adults in financially vulnerable circumstances have £1,000 or less in savings, while barely half (49%) are saving each month, reducing their financial safety net and increasing their reliance on more costly or risky options. |
| Insufficient Income: People don’t have the income to cover day to day costs | Half of adults in financially vulnerable circumstances (50%) say they cannot afford to eat a healthy and balanced diet. The use of food banks has increased, with 15% of adults in financially vulnerable circumstances now relying on charities and community organisations to feed themselves or their families, up from 11%. |
| Access: People have difficulty accessing a range of appropriate products and services (eg current account and credit agreement delivery and support, tailored insurance products, advice) | More than one in five people in financially vulnerable circumstances (22%) have had an application for credit declined during the past twelve months, while more than one in ten (11%) have increased their reliance on illegal borrowing or loan sharks in the last year. |
| Financial capability: People do not have the skills or confidence to manage money well by planning and saving for the future, and build financial resilience for times of difficulty | Almost one in three people (31%) in financially vulnerable circumstances are now using their savings as a primary form of income, up significantly from 23% in just 12 months. |
A huge opportunity for the sector to work together
These latest figures underline the need for the financial services sector to work together to make the market fairer and more accessible. This could include:
- Setting out a vision of everyone in the UK being able to find accessible and affordable financial products that meet their needs, including credit, insurance, savings and banking services
- Developing a national financial inclusion strategy, building on the Financial Inclusion Plan, and working with industry to develop national goals for reducing exclusion, including expanding access to affordable credit and boosting savings
- Establishing a measurement framework to monitor provision of banking services to the financially excluded
- Using Fair4All Finance’s segmentation resources and similar to further understand the needs of people in financially vulnerable circumstances, and design products and services to better meet them
Our findings leave no room for doubt that the current financial services system is not working for everyone. Industry and policymakers must unite to address the increasingly desperate situation facing millions of adults in financially vulnerable circumstances.
‘In an age where every penny counts for households and the public sector, the poverty premium is costing the country a staggering £2.8bn per year. Everyday money worries are driving up absences from work and reducing productivity, creating an additional £6.2bn burden for UK employers which they can ill afford.
‘We need to view financial inclusion as a key enabler for growth. Everyone needs access to financial products to go about their daily lives, manage their money and be economically active.
‘Therefore, we welcome the Government’s commitment to establish a financial inclusion strategy and look forward to working together with the industry to make this effort a success. We have plenty of evidence of what already works, along with action plans for greater financial inclusion previously developed with private, public and not-for-profit sector partners.
‘The time has come for action to create a fully inclusive financial services system that works for everyone.’
Sarah Porretta, Deputy CEO at Fair4All Finance
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