2021 is off to a rough start. The UK is now in a lockdown until at least mid-February, although many are predicting it will last until March at the earliest. Many are finding it tough to make ends meet. With that in mind, I wanted to use this post to share 5 reasons why we need more debt support with you.
Debt is a topic many people shy away from. It’s seen as taboo and something to be ashamed of having. But, the reality is the vast majority of adults have significant debt. Burying your head and ignoring the problem just allows it to grow and become completely overwhelming.
More debt support is needed to help alleviate people’s worries and to set them on the right path to improving their finances. This post aims to explain why it is vital we do this.
The 5 reasons why we need more debt support that I’ll cover in this post are:
- The Majority of UK adults are in debt
- Rising unemployment and the furlough scheme
- Lack of financial education
- Rising wealth inequality
UK adults need more debt support
Recent research from money.co.uk found 78 percent of UK adults started the new year in debt. This figure does not include mortgages, meaning just 22 percent don’t have some form of personal debt.
Most concerningly, 35 percent attribute their debt to ‘normal living expenses’. People simply can’t afford to live the life their leading. This could be due to a range of factors, such as lifestyle inflation or simply spending too much money. But, for many, their income just doesn’t meet basic living requirements.
The average amount of debt owed is £9,246 – a significant sum.
The Covid-19 pandemic has hit everyone’s lives. The health crisis is tragic, but the financial crisis is only just starting to unravel.
A third of UK adults went into debt last year due to the coronavirus pandemic. With lockdown measures still in place and companies still struggling, this figure is likely to increase this year.
Now more than ever, people need practical and quick debt support to help them overcome the challenges of the next few months. This will help put them back on a more financially secure path.
Rising unemployment and the furlough scheme
This is linked to Covid-19, in that many people have lost their jobs due to the measures required to control the virus.
With roughly a third of UK adults only one paycheque away from losing their home, the current rise in unemployment could cause huge problems.
Currently, there is a ban on evictions and you can apply for a mortgage holiday still – but only if you haven’t already had one. This is clearly a positive move, but won’t help those who need more than six months of support.
When these measures come to an end, which they will need to, many will be left in the lurch. More debt support is needed to prevent more people finding themselves in financial ruin.
11.36 percent of new debt acquired in 2020 was attributed to being furloughed, with each furloughed employee acquiring an extra £1,050 worth of debt on average.
There have also been calls to furlough working parents who now have to home school their children once more. Working parents definitely need support during this difficult time. But, expecting them to live off 80 percent of their income is unrealistic for most and will plunge many into debt.
More support is needed for all individuals who have found their income reduced or lost due to the pandemic. Protecting jobs is a very important step, but expecting people to live of 80 percent of their income, for over a year in some cases, is clearly going to have negative long term impacts.
Lack of financial education
There is essentially no formal financial education in the UK. This means people don’t understand the basics, from credit cards to debt and even savings. I barely knew until I started my job in financial journalism!
You can’t blame people for racking up credit card debt if they’ve never been taught about the dangers. Meanwhile, Buy Now Pay Later schemes like Klarna, pray on young and vulnerable people, encouraging them to start taking on debt.
You also can’t blame people for being sucked into payday loans when they are struggling and feeling the pressure. Education is needed to make sure people fully understand the dangers of what they’re committing to when they take on these loans.
Education is a preventative form of support rather than a remedy. It won’t help those that already find themselves in debt trouble, but it may prevent others from finding themselves in that position in the future.
Rising wealth inequality
Wealth inequality is rising at alarming rates, both in the UK and globally. While the rich continue to get richer, more and more fall below the poverty line.
Forbes’ annual ranking of the 400 richest Americans found the US’ three richest individuals (Bill Gates, Warren Buffett and Jeff Bezos) collectively hold more wealth than the bottom 50 percent, which equates to 63 million American households.
If we don’t offer more support to those at the lower end of the wealth spectrum, this problem will just continue to worsen and the gap will only increase.
Simple solutions, like offering support and grants to those in rent arrears, will make a big difference to those on the lowest income. With the amount of stimulus the government is already providing, this would not make a large dent in the public purse, but would make a huge difference to those struggling.
If you found this year in review post interesting, please like it and share across social media or send it to your friends. I’d also love to hear your thoughts and experiences. Do you agree with these 5 reasons why we need more debt support? What would be your top tips for anyone struggling with debt?
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