Facing the squeeze: a qualitative study of household finances and access to credit in a 21st century recession

Since the 1980s, the UK has experienced a consumer credit boom, with dramatic growth in the range of credit products and providers in the market. Concurrent to this, there has been an expansion in the UK sub-prime credit market, which serves consumers with impaired credit records or a history of bad debt, albeit at a higher cost and often with more punitive terms and conditions than mainstream lenders. As a result, access to consumer credit has become widespread in the UK. Coupled with a buoyant labour market, rising incomes, and increasing expectations about standards of living, this fuelled a significant growth in consumer spending over the decade 1997 to 2007.

Like other major economies, however, the UK has since experienced a significant downturn in fortune, which has led to severe constriction in consumer and business lending. And, since early 2009, the UK economy has officially been in recession for the first time in eighteen years.

With this in mind, the Money Advice Trust commissioned PFRC to undertake a piece of research which would provide a snapshot of the views and experiences of people on low and middle incomes in the face of a 21st century recession. In particular, the research set out to examine in detail the extent to which worsening economic conditions in 2008/2009 have resulted in changes to consumers' spending, borrowing and money management.

The main element of the research comprised face-to-face depth interviews with householders in England, Wales and Scotland. The interview data demonstrates that people on low and middle income not only use a wide range of strategies in response to a worsening in their household financial situation, but also often employ a variety of strategies in combination. It was notable that seeking money advice was a response that very few had used.

Most of the people interviewed considered that their household finances had deteriorated in the previous twelve months. They fell into two groups, allocated according to the reason for this deterioration.

1. One group attributed their worsened financial situation to a drop in household income caused by reduced working hours or job loss. Such drops in income had affected both low and middle-income households, different types of household (single people and couples, with and without dependent children), and mortgage-holders as well as tenants.
2. The second group comprised individuals whose financial situations had worsened primarily because of rising living costs, while their income remained largely unchanged. This group was predominantly made up of people living in low-income households, all of whom rented their home from a private or social landlord. Other research has highlighted the disproportionate impact of rising consumer prices on lower-income households, who spend a higher proportion of their disposable income on essentials such as food and utilities than better-off households.

A third, much smaller, group of participants reported that their household financial situation had stayed the same over the past twelve months, or had fluctuated but now seemed stable. These participants mainly lived in middle-income households and almost all were mortgage-holders.

As well as household finances, the research also looks at:

• Spending and money management;
• Consumer borrowing, and
• Consumer coping responses during the current recession.

Facing the squeeze: A qualitative study of household finances and access to credit in a 21st-century recession [ Full report (PDF, 721kB) | Executive summary (PDF, 71kB) ]