The FCA concluded its research early in 2020 but chose to run an extra survey in October in order to understand the impact of the Coronavirus pandemic on the financial situation of UK consumers.
According to the survey, there are now 27.7 million adults in the UK with characteristics of vulnerability such as poor health, low financial resilience or recent negative life events. Having one of these characteristics means that these consumers are at greater risk of harm.
This figure has risen 15% since the FCA completed the main survey in February 2020, when 24 million adults in the UK displayed characteristics of vulnerability.
The number of consumers with low financial resilience increased from 10.7 million to 14.2 million over the course of 2020. The FCA defines low financial resilience as over-indebtedness, low levels of savings, or low/erratic earnings.
In the October survey one in three (30% or 15.9 million) adults said they expect their household income to fall during the next six months, while 25% (13.2 million) expected to struggle to make ends meet.
To cope with the hardships they expected to face, many adults told the regulator that they were likely to cut back on essentials (33%) or to use a food bank (11%). 8.1 million (16%) expected to take on more debt.
However, 48% of adults told the regulator that they have not been affected financially by the pandemic, and 14% had seen an improvement in their financial situation.
Nisha Arora, director of consumer and retail policy at the FCA said: “While there are some positives in the data, many of the findings are worrying. Since the start of the pandemic, the number of people experiencing low financial resilience or negative life events has grown. The pain is not being shared equally with a higher-than-average proportion of younger and BAME adults becoming vulnerable since March. It is likely the picture will have got worse since we conducted the survey.
Ms Arora also said that the focus on consumer vulnerability has been “brought into sharp relief” for the regulator by the pandemic. She added that the regulator expects to finalise its guidance on how firms should treat vulnerable customers “shortly”.
Keith Richards, chief executive of the Personal Finance Society, said: “It is tragic to see so many adults plunging themselves into debt just so that they can eat or heat their homes. Covid-19 has shone a light on vulnerability and shown how we can all find ourselves in vulnerable circumstances in need of a safe pair of hands capable of showing us the way to greater financial security and improved mental wellbeing.
“Financial advisers can help the nation build back their financial resilience better."
At the start of 2021 the Personal Finance Society launched an independent Financial Vulnerability Taskforce with the aim of supporting the profession to better recognise and address the various forms of consumer vulnerability, improve client outcomes and increase access to financial advice.
Rachael Griffin, tax and Financial Planning expert at wealth manager and Financial Planner Quilter, said these latest survey results from the regulator show that a clear vulnerability policy for financial services companies is vital, and that a clear indication is needed from the government how they are going to help "pull the population out of this situation."
She said: "Any approach needs to be twofold: short term remedies for today and longer term reforms to prevent this in the future. If we are truly to increase financial wellbeing within the nation we need to give the population the tools to do so. It remains absurd that financial education is still not recognised as a vital part of the UK primary school curriculum. We know that money consciousness and attitudes are formed by the age of seven and yet we are not helping younger populations form a positive relationship with money.
“As the pandemic exposes more social and economic inequalities, financial education can act as an equalising force, positively affecting and improving a child’s life chances by giving them a good grounding in financial matters from an early age.”
The FCA surveyed more than 16,000 people between August 2019 and February 2020. This was followed by a subsequent survey, with over 22,000 respondents, focused on the impact of the pandemic on consumers, conducted in October.