How COVID-19 is eroding financial resilience

Over the last few months we’ve been exploring the impact the COVID-19 pandemic has had on people’s financial resilience. As well as looking at how the economic repercussions of the pandemic have affected people’s immediate incomes, it is important to look at how the actions they’ve needed to take over to get by since March have affected their ability to cope in the future.

Financial resilience is defined as the ability to cope financially when faced with a sudden fall in income or unavoidable rise in expenditure. As the pandemic continues to affect people’s ability to work, many people may face worse financial consequences than the first wave due to needing to take out debt or resort to other measures which weakened their financial resilience during the first wave.

In our new report we found that:

• 4.2 million more people are now frequently running out of money before the end of the week or month compared to March – bringing the total up to 11 million.
• Employees are twice as likely to run out of money now when compared to before the pandemic. Self-employed people are 2.5 times more likely.
• 8 million workers could cope for less than a month if they lost their main source of income (so less than the five week wait for UC).
• 18 million (34%) people have needed to use some form of debt in order to get by since March.
• Women, younger people, people with a disability, people from ethnic minorities, larger households, and single parents tend to be worst affected.
• Universal Credit claimants have a very low financial resilience. Only a quarter never or hardly ever run out of money (compared to nearly three quarters of people who don’t claim benefits and two fifths of people claiming some form of income related benefit)
• Nearly half of Universal Credit claimants run out of money frequently and a fifth of Universal always run out.

What do we need to do?

It’s clear that many people are continuing to struggle financially because of coronavirus. Without continued financial support many people will be at risk of unemployment, deeper poverty and unable to afford the basics they need.

This makes it vital that the government continues the measures it has put in place to support anyone who has been financially affected by the crisis, including the furlough scheme and the £20 per week uplift to Universal Credit standard allowance.

Many of the people who have been hardest hit by this pandemic are those of us who already face the most barriers within our economy. Women, people of colour, people with disabilities and single parents already faced greater disadvantage and have therefore also used up their financial resilience and ‘buffer’ far quicker than others when the pandemic hit. Therefore, we need targeted support for groups who have struggled to stay afloat the most through the first wave.

Certain welfare policies such as the Benefit Cap and Two-child Limit have made some people more vulnerable to the financial impact of the pandemic. These policies should at the very least be suspended until our economy has recovered.

Our recommendations to the government are:

• Maintain the £20 per week uplift to Universal Credit
• End the five-week wait for Universal Credit
• Increased funding and guidance for Local Welfare Assistance schemes
• Increased support for children through the benefits system
• Increased support for people with disabilities and apply the £20 uplift to legacy benefits.

Read the executive summary or full report.