Yahoo Finance Coronavirus: Young people, ethnic minorities and renters at most financial risk
The economic fallout of the coronavirus pandemic could turn many people’s manageable debt into problem debt, or force households to increase borrowing unsustainably, a new report said.
Think tank IPPR warned that COVID-19 has pushed some people in the UK who were “just about managing” on a tight budget to a point where they are now “just not managing,” due to unemployment, furlough or unexpected costs from the pandemic.
This could become a major burden for families and individuals, with severe consequences for their wellbeing and mental health.
Drawing on data from a regular survey of UK households and a special survey carried out soon after the first peak of the pandemic, IPPR analysis found that young people aged between 16 and 29 were over twice as likely than the average person to have lost their jobs or stopped working during the pandemic.
It also found that ethnic minorities are twice as likely to have lost their jobs or stopped working during the crisis than white people.
People from black, Asian and other minority ethnic communities were more likely to face financial difficulties before the crisis and are more likely to expect difficulty paying bills during the crisis - between 27% and 34%, compared with 14% across all groups.
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Renters are also particularly vulnerable. On average, they are significantly more likely to anticipate facing financial difficulty (26%) than owners (7%) or mortgage-holders (11%).
Researchers at IPPR noted the “cruel irony” that some of those most vulnerable to the health effects of COVID-19 are also the people most at risk of financial hardship.
The study also noted that the situation was dire even before the pandemic hit. It said 27% entered the pandemic holding consumer debt and 10% were behind on their bills.
Things then became worse. It cited recent studies as showing that in the three weeks following the March lockdown in the UK, about 7 million households had lost all or a substantial part of their income due to the pandemic, with 11% reporting being in serious financial difficulty.
By May, 14 million people had experienced a direct negative impact on their income.
The report also revealed a stark regional variation in the risk of financial hardship. Higher pre-pandemic debt levels, coupled with low average incomes and tough local restrictions means people in the North East and East Midlands are most at risk of problem debt, it said.
Anna Round, a senior research fellow at IPPR, said: “We need support in the short-term to make sure that households and local economies don’t bear the brunt of problem debt as a result of COVID-19, and long-term action to prevent problem debt.”
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IPPR’s recommendations include increased government support for debt charities and local authorities working to address problem debt and promote engagement with debt advice.
It said community leaders should look at campaigns to promote financial literacy.
Information about debt and affordability should be in clear plain English, without impenetrable jargon, it said, adding “we recommend that the Financial Conduct Authority collaborate with expert stakeholders to develop best practice guidelines.”
The think tank also said digital practices such as open banking can make it easier for people to plan budgets and improve affordability checks by creditors.
IPPR said better access to low-cost credit through credit unions or other community finance initiatives with government support, funded through multiple stakeholder partnerships that reflect community opportunities and demand, is also critical.
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