Debt Awareness Week: A closer look at the impact of personal debt in the UK
Posted on 21st March 2024 at 16:51
In the landscape of personal finance, debt can be a double-edged sword. While it can be a tool for achieving milestones like buying a home or funding education, excessive debt can lead to financial strain and insecurity. In the United Kingdom, the issue of personal debt has gained significant attention in recent years. In this blog we’ll discuss the scale of the problem, the impact on employees and how at Benefiz we help our clients support their employees.
Understanding the Scale
To comprehend the gravity of the situation, it's crucial to examine the numbers. According to the latest statistics, the level of personal debt in the UK remains substantial. The latest available figures as of June 2023, the average personal debt in the UK has reached £34,597 for adults, an increase of £1,187 since 2022. While this figure may fluctuate over time, it underscores a persistent challenge faced by many individuals and families across the nation. Step Change Debt Charity, a prominent player in the field, reported a staggering 620,000 contacts in the past year alone, extending assistance to over 180,000 individuals with comprehensive debt advice. According to Step Change, nearly a quarter of their clients attribute financial distress to the escalating cost of living.
Factors Driving Personal Debt
Several factors contribute to the accumulation of personal debt in the UK:
Rising Living Costs: The ever-increasing costs of housing, utilities, and everyday expenses put a strain on household budgets, leading individuals to rely on credit to bridge the gap.
Easy Access to Credit: The accessibility of credit cards, loans, and other financial products makes it tempting for consumers to borrow beyond their means, especially when coupled with aggressive marketing tactics by financial institutions.
Stagnant Wages: Despite economic growth, wages have largely remained stagnant for many workers, making it challenging to keep up with the rising cost of living without resorting to borrowing.
Financial Illiteracy: A lack of financial education leaves many individuals ill-equipped to manage their finances effectively, leading to poor decision-making and, consequently, debt accumulation.
Life Events: Major life events such as job loss, illness, or divorce can provoke financial hardship, pushing individuals into debt as they struggle with unexpected expenses and income disruption.
The Impact of High Personal Debt
The repercussions of high personal debt extend beyond financial implications:
Stress and Mental Health: The burden of debt can take a toll on mental well-being, leading to stress, anxiety, and depression as individuals struggle to cope with financial pressure.
Absence from Work: As mental health declines, the ability to perform at work becomes impossible leading to increased absence and lower productivity for employers.
Impact on Relationships: Financial difficulties can strain relationships, leading to conflicts and breakdowns as couples navigate the challenges of debt repayment and shared financial responsibilities.
Limited Financial Freedom: Excessive debt restricts individuals' ability to save, invest, and plan for the future, jeopardizing their long-term financial security and hindering their ability to achieve goals such as home ownership, start a family or retirement.
Addressing the Challenge
At Benefiz we help our clients support their employees struggling with debt through our Mental Health and Financial Wellbeing partners, Paranimo and Maji.
MAJI : Equipping employees with the knowledge and skills to make informed financial decisions can empower them to manage their finances responsibly and avoid falling into debt traps. We partner with Maji, an online financial wellbeing service which can be added to any client’s suite of benefits, whether it’s on our platform or added to the client’s internal intranet. Maji enables the employee to see their full financial health in one place, bank account, credit cards, savings, mortgages, and pension. They can see what they are spending their money on, set goals for spending less and saving more, use the tools to see what the future would look like if they contribute more to pension and have access to financial coaches who can help them manage their finances better.
Paranimo: Just as important as the coaching is the mental health support. The stress and anxiety of debt can have a devastating impact on a person’s mental health and their ability to work. Most employers will have an Employee Assistance Programme (EAP) of some description attached to their existing benefits and while it’s great that these services are available, they have limitations. To ensure that all employees get as much support as they need, we partner with Paranimo to provide ‘’Pay As You Go’ personalised mental health therapy sessions. The employee can choose the therapist they want to speak to and have as many sessions as they need, and this can be paid for by the employer. This is an innovative way of providing a new level of care for your employees.
Signposting Help: we use our communications to clients, and our benefits technology to sign post help to our Mental Health and Financial Wellbeing partners, as well as EAPS’s and free websites like MoneyHelper, Citizens Advice or Step Change.
Conclusion
The level of personal debt in the UK represents a complex issue with far-reaching implications for employers, individuals, families, and society as a whole. While the challenges are significant, they are not insurmountable. By addressing the root causes of debt accumulation and implementing targeted interventions, we can work towards a future where financial well-being is attainable for all. It's time to confront the burden of personal debt and pave the way for a healthier, more resilient financial future.
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