Credit Management January February 2022

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CONSUMER COLLECTIONS CRISIS OF CONFIDENCE The pandemic continues to bite consumer finances. AUTHOR – Heather Greig-Smith AFTER a turbulent couple of years, with signs of a recovery in the second half of 2021, the Omicron variant poses a new wave of challenges. But how do consumers feel about their finances and capacity to cope? The global economic challenges are significant, but UK consumers are failing to measure up when it comes to understanding their finances, according to the annual survey of 24,000 European consumers by credit management group Intrum. While 58 percent say they want to ensure they are in a stronger financial position before another global crisis, more than a quarter have less visibility of their short-term borrowing now than they did before the pandemic started, while 24 percent say they don’t even want to know how much they owe. GENERATIONAL DIVIDE The 2021 European Consumer Payment Report shows this trend is especially pronounced amongst younger age groups, with 45 percent of 22-37-year olds admitting they have their heads in the sand over their financial situation. It reflects a growing generational divide in the aftermath of the pandemic. When asked to calculate the impact of interest rates on savings, for example, just 36 percent of Gen Z (18-21 year olds) gave the right answer, compared with 76 percent of Baby Boomers (55+). Similarly, just 25 percent of Gen Z identified the correct definition of ‘inflation’, compared with 81 percent of Baby Boomers. While it is concerning that higher proportions of younger age groups have little control over their personal finances, they also have less disposable income than other age groups and the credit they are granted is limited by their income levels. This means their outstanding balances and the scale of their debt problems are likely to be lower. Gavin Flynn is Operations Director for Intrum in the UK and Ireland: “Some consumers have found themselves in a difficult financial situation over the past year and have struggled to pay their bills on time. We have seen how the pandemic has deepened existing inequalities,” he says. The temptation for individuals to ignore the problem is huge, adds Intrum’s UK and Ireland Managing Director Eddie Nott: “Understandably, many find the situation overwhelming. As we begin 2022, we face yet more uncertainty over the pandemic as well as rising unemployment and the likelihood that energy prices will rocket when the current price cap runs out in April. Things will be very tight for many consumers. “As hard as it is, it’s important that people understand the impact on their household finances and can seek help if they need it.” United Kingdom European Consumer Payment Report 2021 FINANCIAL EDUCATION Regardless of age, now is a good time for consumers to increase their knowledge of financial management. While 82 percent of UK consumers believe they received sufficient or excellent financial education, a third don’t understand how interest rate changes could affect their financial position and 50 percent need help with complex financial matters. “The COVID-19 crisis is a stark reminder of the essential role that financial education plays in helping consumers manage their money and withstand curveballs when they arise,” says Eddie. And there are likely to be many curveballs coming our way. Almost half (48 percent) say their bills are increasing more quickly than their income and a quarter have less than 10 percent of their income left after paying bills. In the six months leading up to Intrum’s survey, 30 percent had borrowed money or reached their credit card limit in order to pay bills – higher than in 2020, when 20 percent said the same. Parents are especially hard hit, with 87 percent of them saying they have borrowed or maxed out their credit card to buy things for their children. All this adds up to financial stress. More than a quarter are more likely to miss a debt payment now than at any other point they can remember. On the positive side, the pandemic does seem to have motivated consumers to focus on financial security, with 39 percent saying they are putting money aside to protect their financial wellbeing and a third saying they have set targets to better manage their bills and savings. PARENTAL SUPPORT According to the report, the pandemic has also encouraged parents to spend more time helping their children understand financial management – 54 percent said they were more likely to do this now than before the pandemic. However, although well-meaning parents are passing advice to their children, it may prove to be counterproductive if the parents themselves have not had a solid financial education, or do not take care to explain the nuances of credit and how it works. “More than half say they are more likely than they were to urge their children not to take on debt. This isn’t necessarily good advice. Managed correctly, debt supports entrepreneurial pursuits and forms an integral part of the business community and wider economy,” says Eddie. Unfortunately, it seems certain that more financial pain is coming in 2022. Even before the Omicron variant hit, more than a third of UK consumers said they expected Covid to have a negative impact on their finances for another 12 months, while a fifth expected it to take more than two years to get back to normal. This means businesses need to anticipate and prepare for the impact. “The pandemic has left some groups of consumers worse off and some have taken on additional debt to make ends meet,” says Ian Davies, Client and Sales Director for Intrum UK and Ireland. “Given this, and increasing inflation, we expect more payment problems in future. Businesses will need to review their credit management strategies to meet the challenges ahead and reduce credit losses.” Brave | Curious | Resilient / www.cicm.com / January & February 2022 / PAGE 14
0 20 40 60 80 100 0 20 40 60 80 100 CONSUMER COLLECTIONS AUTHOR – Heather Greig-Smith 45 percent of 22-37-year olds admitting they have their heads in the sand over their financial situation. It reflects a growing generational divide in the aftermath of the pandemic. Saving for the future 45% are dissatisfied with the amount they are able to save each month. In 2020, 49 per cent stated the same. The European average for 2021 is 54 per cent. The Covid-19 crisis has not only had an immediate impact on household finances; it also has much longer-term implications for consumers‘ ability to save for the future. According to the UK Office for National Statistics, the savings rate rocketed to 23.4 per cent in Q2 of 2020. It has since come down to 11.7 per cent in Q2 of 2021 but remains relatively high. Our survey shows that 81 per cent of UK consumers are able to save each month, however, 45 per cent are dissatisfied with the amount they are able to put aside. UK consumers say their main reasons for saving are for unexpected expenses (64 per cent), retirement (46 per cent) and travel (43 per cent). On average, what percentage of your salary do you save each month? 20% 76% save money each month I do not save money each month 44% 19% 13% 24% Female 86% save money each month Male 45% 23% 18% 14% European Consumer Payment Report 2021 UK 15 SAVINGS CUSHION The unequal effect of the pandemic means that some consumers have been able to save more money than others – those whose income remained unchanged had fewer travel and leisure costs, so are better off than they were previously. As a result, the savings rate has risen significantly, and 81 percent are able to save something each month. However, the survey found that almost half of those are dissatisfied with the amount they are able to put aside. Clearly, there is an ongoing divide between those badly affected by the pandemic and those whose wealth has risen. As interest rates rise, the latter will be better placed to weather the storm. “Low-income households have been more likely to experience job instability and financial hardship, which is reflected in their savings patterns,” says Intrum’s Senior Economist Anna Zabrodzka. “Those who managed to accumulate savings during the pandemic will find it easier to absorb higher costs without facing payment problems.” SUSTAINABILITY CHALLENGE Meanwhile, this year’s survey shows that consumers are increasingly holding firms to account on sustainability, with 56 percent of UK respondents saying they wouldn’t buy from a company they knew to be responsible for harming the environment. Social media is playing an important role in putting sustainable consumption at the top of the agenda. Though 39 percent say social media creates pressure to consume more, these channels have also increased awareness around buying sustainable products. This is especially true for younger age groups. Along these lines, waste is also an issue for many – 61 percent say they are actively buying less to reduce clutter. These consumers are after a simpler life, increasingly fixing or recycling old items rather than buying new and eating more leftovers than they used to. The younger generations and parents are at the forefront of this push towards sustainability. Businesses need to be aware of the knock-on effects of this. For example, a third of UK respondents said they would feel no guilt about paying a company later than agreed if they thought the company was unethical. This figure rises to around half for Gen Z consumers, reflecting the extent to which this cohort is willing to take action around green issues. “Consumers, especially the younger generation, which is only just starting to exert its consumer power, are using their consumption to exert pressure around climate issues,” says Intrum’s Sustainability Director Vanessa Söderberg. “By focusing on sustainability, businesses of all sizes can balance their risks, maintain a healthy cash flow and be better equipped to prosper and grow.” Eddie agrees: “While it’s true that consumer intentions don’t always translate into action, businesses would be wise to pay attention to this trend if they are to retain the loyalty of these customers,” he concludes. Intrum has published The European Consumer Payment Report on an annual basis since 2013. The report is based on an external survey that is conducted simultaneously in 24 countries in Europe. A total of 24,012 consumers participated in the 2021 edition. This year marks the ninth edition of the UK version of t he report. For more information visit: www.intrum.co.uk Brave | Curious | Resilient / www.cicm.com / January & February 2022 / PAGE 15
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Page 9 and 10: NEWS SPECIAL AUTHOR - Sean Feast FC
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Page 13: INSOLVENCY AUTHOR - David Kerr FCIC
Page 17 and 18: CYBER FRAUD AUTHOR - Adam Bernstein
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Page 33 and 34: STATISTICS Data supplied by the Cre
Page 35 and 36: EXCELLENCE IN CREDIT MANAGEMENT EXC
Page 37 and 38: SALARY AND RECRUITING TRENDS AUTHOR
Page 39 and 40: EDUCATION & MARKETING These are pre
Page 41 and 42: Each of our Corporate Partners is c
Page 43 and 44: www.tcmgroup.com Probably thebest d
Page 45 and 46: COMMERCIAL LENDING AUTHOR - Sean Fe
Page 47 and 48: CICM MEMBER EXCLUSIVE Your CICM lap
Page 49 and 50: Brave | Curious | Resilient / www.c
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Credit Management January February 2022

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