Tag: personal finance

85% of Scots are changing how they manage their money because of COVID-19, says new research

www.equifax.co.uk  

New research by credit reference agency Equifax reveals that the financial uncertainty of 2020 means 85% of people in Scotland will change the way they manage their personal finances in the immediate and long-term future.

Although one third (34%) of Scots said 2020 brought greater financial uncertainty, 16% have entered this year feeling positive about their finances. 54% of those who experienced financial uncertainty in Scotland said they are now trying to be more frugal, compared to 46% of the wider UK. 

Key data: 

  • 46% of residents in Scotland are trying to spend less disposable income each month  
  • 31% of Scots feel confident about their finances going into 2021 compared to just 19% of the UK as a whole 
  • 70% of 18-34-year-olds across the UK said 2020 brought them financial uncertainty, steadily decreasing across all age groups with only 11% of those aged 65 plus feeling the same 
  • As a result, 63% of 18-34-year-olds plan to change the way they manage their money in the immediate future, with 32% starting to save or put money aside 
  • 52% of UK women compared to 38% of men who experienced financial uncertainty in 2020 said they will be more frugal in 2021 
  • 41% of UK women plan to ‘buy more things I need and less things I want’, compared to 33% of men 

Lisa Hardstaff, Head of Customer Experience at Equifax commented: “Our latest research suggests vital personal finance lessons have been learned in this pandemic, and more people are looking to better manage their money.

“54% of those surveyed in Scotland said they are trying to be more frugal and it’s encouraging to see that 13% are proactively researching ways to manage their money. 19% of the region are also starting to put money aside and will be using spreadsheets and apps to help them budget.”  

Despite the huge financial uncertainty of last year, the research revealed that 28% of residents in Scotland used credit less than they did in 2019. However, 14% used short-term ‘Buy Now, Pay Later’ services for their online Christmas shopping. 

Clare Seal, author of Real Life Money and frugality champion added: “One of the silver linings of last year is that as a nation we are now being more open about financial concerns and mental health issues. In fact, 8% of the region said they are proactively seeking more financial advice from family and friends.”  

As the Christmas credit card bills land on people’s door mats, Equifax has a wide range of useful articles and tips in its Knowledge Centre.  It also has an online budget planner that allows people to monitor their income against their outgoings, to help them take control of their finances now and in the future.    

“A financial planner not only helps manage outgoings each month, it allows people to prioritise important financial commitments like mortgage payments, council tax, etc” concluded Lisa Hardstaff.

“It can also help to see where money can be saved, such as unused memberships or cutting back on food bills.  If we are in the Year of Frugality have a clear view of all outgoings is essential.” 

Buy now, Regret later?

Which? is calling for Buy Now, Pay Later firms like Klarna and Clearpay to be fully regulated to provide greater protection for consumers, as new research from the consumer champion finds concerning industry practices encourage people to spend more than they planned to.

The consumer champion’s findings show that these slickly designed, easy-to-access credit products are encouraging impulse buying, with nearly a quarter of BNPL users (24%) saying they spent more than they planned to because BNPL was available.

With one in ten (11%) BNPL users reporting that they have incurred late charges when paying this way, Which? is concerned about the dangers involved with this growing form of unsecured credit, particularly when the risks are not always made clear, and is calling for the financial regulator to be given new powers to fully regulate the BNPL industry to prevent consumers from being harmed.

The research suggests pushy marketing strategies, combined with sales features that make payment easier – such as ‘express checkout’ services on some retailers’ websites – could be driving people to overspend and leading to people falling into debt, a concern also shared by debt charities such as StepChange.

Which? also found that a quarter of BNPL users (26%) said they had not planned to use this type of payment option until it popped up at checkout, while two in ten (18%) said they used BNPL because they were offered a discount to do so.

One in ten (13%) also said they used it by accident because it was selected as the default payment option at checkout. One survey respondent said: “I was tricked into [using] it because the box was already ticked”.

BNPL firms also advertise heavily on their partners’ websites. Which? looked at 80 of these sites and found the largest BNPL ads take up as much as 80 per cent of the screen, with fashion retailers most likely to carry these prominent ads.

These factors are evidence of the firms’ application of consumer psychology to drive sales, a strategy one BNPL provider has promoted to its retail partners.

In 2017, Klarna, one of the leading BNPL firms in the UK, commissioned a study with the University of Reading into online shopping behaviour. The report, intended for partner retailers, explains how to design ‘customer journeys’ that will persuade people to make ‘emotional’ purchases instead of ‘logical’ ones.

However, as Which? research shows, these frictionless customer journeys can lead to shoppers spending more than they can afford, without necessarily being aware of the risks.

41 per cent of people in the Which? survey who were aware of BNPL either did not believe or did not know that missing a payment could lead to the BNPL firm passing your debt on to a debt collection agency.

As a result of its findings, Which? is now calling for providers of this type of BNPL service to be regulated by the Financial Conduct Authority.

In its submission to the regulator, the consumer champion said that, while supportive of innovation, it believes that the BNPL market must have consumer protections in place in line with other regulated unsecured credit products.

Giving the FCA the powers to regulate the BNPL market would allow it to more effectively monitor how BNPL firms treat consumers, and if necessary, take action to prevent consumers from being harmed.

Jenny Ross, Which? Money Editor, said: “While Buy Now, Pay Later services offer speed and convenience at the checkout, our research shows their design makes it far too simple for shoppers to spend more than they were intending.

“This could lead to people building up debts that they may struggle to pay back, which is particularly concerning if they don’t understand the risks of using this type of product.

“Given that many people’s finances are stretched now more than ever, we believe that the FCA needs to regulate this market to ensure consumers are not harmed and that action can be taken if these firms are treating customers unfairly.”

A spokesperson for Klarna responded: “While we cannot speak for the sector as a whole, it is wholly incorrect to claim that Klarna uses ‘pushy marketing strategies’. All Klarna customers are provided with our terms and conditions, which clearly outline the potential consequences of non-payment.

“If a customer misses a payment, we will proactively contact them to remind them via text, email, in-app notifications and letters. Klarna will only refer unpaid debts to a debt collection agency as a last resort after a period of several months.

“Klarna is fully engaged with the FCA review of the unsecured credit market.”

Scottish investors consider Brexit and low interest rates to be the biggest threats to their wealth

–         Only 3% of Scottish investors say their finances are in better shape than 12 months ago

–         Brexit and low interest rates cause most concern for Scottish investors

–         Just a third (34%) of these investors see inflation as a major threat

Investors in Scotland view Brexit and low interest rates as the biggest threats to their wealth, according to a new survey of over 1,000 UK savers and investors, and 500 High Net Worth Individuals commissioned by Rathbone Investment Management. Continue reading Scottish investors consider Brexit and low interest rates to be the biggest threats to their wealth