UK Debt: Cultural Challenge or Institutional Failing?

“The UK is facing a debt time-bomb”, the Citizen’s Advice Bureau warned us back in April. The charity has seen a huge surge in people seeking advice while juggling a negative budget this year and argues that debt is simply unavoidable for millions struggling with the rising cost of living. It’s not a surprise, then, that April was the same month 700,000 Britons defaulted on their rent or mortgage payments. 

While the current financial climate is undoubtedly a key player, we have to wonder whether accountability for the UK’s debt problem lies with:

  1. Providers failing to properly assess, prepare, and communicate with their customers, or;
  2. Customers, caught up in a cultural process spanning the last 30 years whereby debt has become a normalised and accepted part of life. 

And if accountability lies with both institution and cultural system, how do we begin to combat that to protect financial futures?

Current Context

UK households now owe a record £22bn in unpaid bills. And these are the essential bills – council tax, utilities, etc. The figures marry up with reports from UK Finance and the Office of National Statistics that people across the country are turning increasingly towards credit to cover costs. 

People also use their savings to stay afloat, leaving them less financially resilient and more vulnerable to future financial catastrophe. We also can’t forget to consider the black marks defaults and arrears will add to their credit scores – paving the way for serious difficulty even after the cost of living smog has cleared. 

Cultural Challenge

“High levels of personal debt are a signal of a dysfunctional economy“, economists claimed back in 2013 during the height of success for payday loan services. It’s now 2023, and personal debt currently stands at around £34,000 per UK adult. Also reminiscent of a decade ago is the rise in the cost of essentials alongside long-stagnant wages. 

As a culture, we have a complicated relationship with debt. On one hand, we equate financial responsibility with morality. We want to see people cancelling their streaming subscriptions and holidays when they’re struggling; credit score trumps quality of life. And on the other, we are subjected to millions of pounds of credit advertising every day of our lives. Dangerous promises of ‘all credit scores guaranteed’ and ‘you’re pre-approved!’ dominate our inboxes, alongside constant adverts for quick and easy finance. The imagery shows us happy people with their new cars and renovating their houses. The message here is that credit allows you the freedom to have the things you want. 

The constant exposure to credit is aggressive, often contributing to over-borrowing and problem debt. There’s also research to suggest that these offers are in themselves a signal to the recipient that more debt is manageable. Institutions must employ marketing channels in order to stay competitive, but it contributes to the cultural landscape of finance – ever-present and always an option. 

The disparity between these two attitudes has to do with financial literacy. Of course you can have credit, but you must use it responsibly. Yes, you can apply – but you must make sure you can afford the repayments, plus interest. The problem is that 9 out of 10 surveyed British adults claim they have been left completely unprepared to manage their own finances. How can we expect people to be responsible with their finances if they don’t know how finance works?

The lack of provision for financial education in the UK compounds this. School curriculums remain devoid of money management and people are left confused by provider’s explanations of their products and services. 

Institutional Failing

There is a strong argument for finances to be added to the school curriculum. At the moment, financial education is non-existent at worst and poor at best across UK schools. However, financial institutions must take accountability for the products and services they offer. It’s a concern that a person is able to access credit without understanding what that means for their finances in the long term. This is exacerbated by a lack of aftercare and accessible communication well into the product’s lifecycle: 

"Findings from the FCA's latest Financial Lives survey revealed that 3.6 million people contacted one of their financial services providers but could not get the information or support they wanted... A fifth of those with low financial resilience and a fifth of those with low capability reported that provider communications did not help at all."

Debt has become an unavoidable conclusion for thousands of people who are no longer able to cover their expenses with their income. Citizen’s Advice now claims that of those people seeking advice, 51% are now operating within a negative budget, compared to 36% in 2019. And to make matters worse, those seeking help are often hitting roadblocks or completely uncommunicative providers. It means the number of people entering into Individual Voluntary Arrangements has increased, but even that doesn’t always ease the hardship – with people often cutting back on essentials like food or heating to make their payments. 

It is the responsibility of the financial institution to make sure customers understand the products they are signing up to, but it is equally important that they make sure provision is made for those who need support and guidance throughout the lifetime of those products. For mortgage providers, this has to mean proactive and meaningful communication for the full term. The alternative is to walk blindly into the coming crisis – where the rate of defaults and arrears become more frequent, despite having had every opportunity to fix it beforehand.

Unfortunately, the financial services industry is still failing those facing serious hardship – both before and after a deal has been signed: 

“You would hope that what greets them here is a system and set of solutions that will help them get back on their feet, or at worst, not make things actively harder for them. The reality is very different. The most apt description is a wild west – search online for options to pay off debts, and you’ll be bombarded by profit-seeking firms offering misleading advice about debt solutions which won’t help. Fall behind on bills and you could find unregulated bailiffs knocking at the door.”

Communication with Eligible

Eligible’s award-winning technology currently serves over a million mortgage customers across the UK, trusted by some of the country’s biggest institutions to engage and educate them during the product lifecycle. Using AI to combine financial and behavioural data, Eligible can predict how best to support each customer’s financial situation, delivering curated content feeds, product updates, and support options. 

This is an unrivalled solution for the mortgage market, helping customers develop better decision-making and ultimately delivering better outcomes. 

Book a demo with us to find out more. 

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