Why Adults Regularly Use Credit for Food and Bills: A Review

• Context
• The study
• Key findings
• Points to consider

Context

In January 2020, The Money and Pension Service (MaPS) launched the UK Strategy for Financial Wellbeing 2020-2030. The Strategy announced five ambitious agendas for change to help people make the most of their money and pensions and set out how they would measure progress against these. One of these ambitions, the ‘Credit Counts’ goal, was to reduce the number of people using credit for food and bills by two million.

The National Strategy measure is based on a single survey question which asks: “How often do you/your household use a credit card, overdraft or borrow money to buy food or pay bills because you have run short of money?”. Analysis of the Financial Capability Survey 2018 has shown which socio-demographic groups are more likely to report using credit for essentials in this way very or fairly often. However, less is understood about why a substantial minority of the population (17% of households in 2018) use credit in this way.

This review draws on research evidence from the last five years to consider what these reasons might be. It starts by re-considering the survey findings to identify the potential reasons indicated by the existing analysis. It then explores the socio-economic, financial factors and other factors which have been considered in the literature. It ends by considering the likely impact of COVID-19 on using credit in this way.

The study

This review included 42 published items encompassing previous research reviews, new research and think-piece items. Items were sourced from 19 UK research organisations and repositories and limited to research undertaken in the last five years.
The review is organised into four sections; each exploring specific areas of research:

1. Group Characteristics: What do the characteristics of those who regularly use credit for everyday essentials tell us about the reasons why they might do so?
2. Socio-economic and financial drivers: What are the socio-economic and financial factors that account for why people regularly use credit for everyday essentials?
3. Market-driven and personal factors: What are the other factors that help explain why people regularly use credit for everyday essentials?
4. The impacts of Covid-19: What is the likely impact of the COVID-19 crisis on the propensity for households to rely on credit for everyday essentials?

Key findings

The research suggests that income and hardship are important factors, but that other reasons also emerge:

Group Characteristics

• Based on the analysis of the Financial Capability Survey 2018, adults who said they or their household often used credit for everyday household bills were typically living in younger households with dependent children. They were likely to be in full-time work themselves, but were polarised by household income (being drawn disproportionately from both the lowest and highest income groups). Around one in three had a disability and a similar proportion reported recent mental health problems in the last year.

Socio-economic and financial drivers

• The author explored the available evidence on a range of factors that impact on the financial circumstances of households: income, earnings and employment; wealth, assets and savings; the cost of living, financial shocks; and, financial difficulty and debt spirals. These factors help to explain why some people borrow more than others and why they might rely on credit for food and bills.

Market-driven and personal factors

• In addition to purely socio-economic and financial influences, there is evidence in the literature that other factors may play some role in why some people use credit for essentials. The following themes emerged and were explored through the available literature: the nature of the credit market; personal circumstances and vulnerability; financial capability; social norms; personality traits; and, cognitive and behavioural bias.

The impacts of Covid-19

• The findings indicate that the crisis has so far impacted the earnings of the poorest households the most. By April 2020, an estimated 3.1 million households were in serious financial difficulty and a further 4.6 million households were clearly struggling to make ends meet. Notably, the non-payment of household bills increased at this time, and further again in May 2020.

Points to consider

• Methodological strengths/weaknesses: The author cites that the review was brief and non-systematic and did not assess the research for quality; relying on report summaries and conclusions.
  • The literature did not typically distinguish using credit for everyday essentials in the specific way identified in the Credit Counts measure and it did not always distinguish credit use from problem debt. Thus, a broader evidence base on credit use is referred to.
• Generalisability/ transferability: The review incorporates evidence emerging in the early stages of the coronavirus crisis – up to the middle of 2020. Therefore, the findings relating to the impacts of Covid-19 should be treated with caution until the situation is stable and more recent data available.
• Relevance: This report is relevant to all stakeholders, academics and policymakers with an interest in the factors that influence consumer borrowing behaviour in the UK.