It’s no secret that we are facing the biggest cost of living crisis seen in a generation. The new tax year kicked off with news of a rise in outgoings for millions across the UK, from the amount of national insurance taken out of our pay packets, to jumps in household bills such as council tax, fuel and energy bills.
According to the Office of National Statistics (ONS), in March 2022, inflation saw an annual rise to 6.2%, up from 5.5% in February. If we look at the monthly increase, this is a 0.9% increase compared to 0.2% in 2021. Essential bills such as gas, electricity and water are, of course, having the biggest impact on many, with stories of the most vulnerable individuals and families having to make the choice of ‘heating or eating’ thanks to the burgeoning cost of basic essentials.
Hitting the poorest homes
As we know, any increase in the cost of living will disproportionately impact the poorest families. According to the charity Action for Children, more than four million children were living in poverty in the UK last year. It cites figures from the Resolution Foundation which show that the poorest 10% of households spend twice the share of their family budget on things like food and energy compared to the richest 10% of households. With these figures in mind, it is easy to understand how the most vulnerable will be struggling to manage the current levels of inflation.
Credit unions and community banks are best placed to support these individuals and families through the difficult times ahead. By opening up the services they can offer and giving access to a wider audience through technology, they have an opportunity to help many more people than are currently members of credit unions, as well as try to prevent use, and eventual over dependency, on services like payday loans, ‘Buy Now Pay Later’ purchases or illegal money lenders.
The Centre for Social Justice’s recent report on illegal money lending found that 62% of those who became victims of loan sharks had an income of below £20,000 a year, with about half of this number on less than £15,000. It also revealed that 66% also had debts owing to legal creditors and 75% were benefits claimants. Without the support needed for these individuals, they will continue to look to unethical sources of finance.
It’s vital we get the message out there that credit unions can support families who are struggling with the cost of living, be it through affordable lending or simply saving and education for longer term financial stability. Our Loan Comparison Website product, for example, aims to reach active borrowers at the point of transaction and prevent them turning to either high-cost or illegal sources of finance to stay afloat.
Cost of living crisis support
Alongside measures by the Government which aim to ensure the poorest in society are excluded from tax rises, credit unions and community banks could pay a key role in address the rising cost of living over the next few years.
Lower cost loans are clearly important but it is more than just that. With support and financial advice on hand, the hardest hit need to engage with their local credit unions more than ever. We often hear that one of the biggest challenges for credit unions and affordable lenders is lack of awareness, as well as understanding, about what a credit union is and what they offer. Better communications, marketing insight and access to a wider pool of members is crucial to overcoming this.
With most people now sourcing finance online, it’s vital that all credit unions take steps to fully digitise so they can reach as many potential Members as possible. Our Loan Comparison Websites product, for example, enables credit unions to appear on mainstream price comparison websites to pre-screened and ready-to-buy consumers looking for loans. The loan application process also needs to digital, with 24/7 applications and automated decisioning as standard.
Equally, offering Members access to services such as Faster Payments, Direct Debits and Open Banking, must become the norm so that credit unions can establish themselves as the first port of call for borrowers, particularly those going through a challenging financial period who might otherwise end up in significant debt to exploitative lenders.
With the cost of living crisis likely to persist for the foreseeable future, our sector can play a key role in helping the most vulnerable.