COVID-19’s impact on personal finances

By Chris Vinnicombe, VP Financial Services

The COVID-19 pandemic has caused economic chaos on a scale far greater than many of us have experienced in our lives. Millions of people across the UK have had their economic realities turned upside down. The latest figures from the ONS have found as many as 1.5 million are currently unemployed, 209,000 more than a year earlier and 138,000 more than the previous quarter.

Whether for businesses or individuals, access to credit has never been more of a lifeline than it is right now, and the financial services industry has stepped up to help support the economy. Over £46 billion of government-backed loans have been approved to help businesses, alongside things like mortgage payment holidays and other investment injections.

For generations, banks, building societies and other financial institutions have served as valuable and trusted advisors, often through the contact point of the bank branch. But as those have closed, and gradually services have become more digitised, the financial services sector mustn’t forget how important having a strong understanding of the unique individual needs of their customers can be – none more so than now, with so many of us facing financial difficulties.

Boosting savings

For those of us lucky to have maintained most if not all of our income, however, the financial picture is quite different. With less spending in shops, cafes and pubs, many people took the opportunity to pay off their debts and put money aside. Total UK spending on credit cards fell 44.7% year-on-year in May, with debit and credit card transactions also plummeting 39%, according to figures from industry group UK Finance. Reduced spending helped those lucky enough to do so to catch up on their unpaid debts, with outstanding balances on credit cards making their largest monthly fall in a decade back in April.

To explore these two realities, Acxiom surveyed just over 1,000 UK adults this summer, and in doing so discovered the ways in which the pandemic is highlighting existing financial inequities.

While 2% of those in the highest income bracket have lost their income, more than four times as many in the lowest income bracket have lost theirs. Unsurprisingly given the level of uncertainty, more than half of those who have lost their job or seen their income temporarily reduced expect their income to remain in a worse position by the end of this year.

The trusted advisor

Looking forward, this research found that respondents overwhelmingly expect banks to step in and provide support now and in the recovery phase. 70% agree banks will play an important role in helping people in a recession, and while banks and the wider financial services industry have been incredibly helpful in the immediate fallout from the pandemic, the shockwaves on both personal and business finances are likely to be felt for some time to come.

The main value they can add is by being a trusted advisor, whether that be by providing recommendations and personalised offers, or easier access to financial support and advice. Developing a deeper understanding of customers is vital here, as no one size fits all.

Guiding the younger generation

41% of respondents to the Acxiom study aged 18-24 said a lack of understanding of who or what to look for is stopping them from seeking advice, with 31% saying they find it confusing.  With many in this age group willing to share their financial information and interested in tracking their financial health, there’s a big opportunity for banks to make the data they have on this group of customers in particular work harder, so they can not only provide more advice, but also boost their services in a way that starts to build trust and loyalty.

This might have been something the high street branch and bank manager might once have served, but as locations have closed and services have moved to online and mobile app platforms, it’s important that this level of contact is maintained so that customers feel advice and support is just as accessible. This is particularly true for older generations, who may not be as computer literate and digitally savvy.

Rebuilding

ONS stats on the business impact of COVID-19 found one in 10 businesses by the end of June 2020 had temporarily closed or paused trading, with one in three of those still open seeing at least 20% lower trading. Such economic impacts run much, much deeper than the 2008 recession. For financial services institutions working to help their customers, they need to be sensitive to the individual realities of their customers – some have lost their jobs, but some have saved their income.

Financial health is a personal topic for many of us – and the impact highlighted by Acxiom’s research only adds to that. Those bank brands that best recognise and navigate this will be the ones that develop the greatest trust and loyalty as the economy rebuilds.