Financial wellbeing since April 2020

Summary

• Four years ago Which? updated its approach to collecting data on financial difficulty and consumer confidence. In this article we reflect on the past four years of data and explore the trends that have developed
• Both of our financial difficulty metrics have seen dramatic rises in the past four years, with rates rising from low levels in early-2020 and remaining high in 2024
• The proportion of households making adjustments to cover their essential spending has improved slightly over the past 18 months for higher income groups, but remains very high for those on the lowest incomes
• Consumer confidence fell dramatically during the cost of living crisis, slowly recovering since. Consumers’ confidence in their future household financial situation has recovered the most in the last 18 months, compared to current household financial confidence and future confidence in the UK economy

You can view more data and articles from our monthly tracker survey on our dedicated Consumer Insight Tracker page.

Introduction

Four years ago, in April 2020, we updated our Consumer Insight Tracker questionnaire to include a new set of questions capturing financial difficulty. These are:

• Missed payment rate: the proportion of households who told us they have missed an essential payment - mortgage payment, rent payment, loan or credit card payment or household bill payment - in the last month.
• Financial adjustment rate: the proportion of households making at least one adjustment to cover essential spending such as utility bills, housing costs, groceries, school supplies and medicines in the last month. Adjustments include cutting back on essentials, dipping into savings, selling possessions or borrowing.

These questions were added to our survey in April 2020 and have been asked monthly since. At a similar time, in February 2020, we moved to collecting data on consumer confidence monthly (previously they had only been asked bi-monthly). Our data comprises of three measures of consumer confidence from which net confidence scores are calculated: 

• Consumers' outlook on whether their current household financial situation is good or poor
• Whether consumers think their household situation will get better or worse over the next year
• Whether consumers think the UK economy will get better or worse over the next year

The data we have collected on both financial difficulty and consumer confidence have been hugely valuable over the last four years, shedding light on the impact of the Covid-19 pandemic and cost of living crisis on household finances and future confidence.

In this article we take a look back on the past four years of data and explore the trends that have developed. For each measure we examine the trends using a past three-month moving average for each data point (for example, the average monthly missed payment rate between January and March 2024). This approach gives a better indication of long term trends than the monthly data which can be more volatile. 

The rise of financial difficulty during the cost of living crisis

Both of our financial difficulty metrics have seen dramatic rises over the past four years, with rates rising from low levels in early-2020 and remaining high in 2024. However, as we will see in the following section, our two metrics have not followed the same path in the last four years. 

Missed household payments

For our missed payment rate - the proportion of households reporting that they missed a housing, bill, credit card or loan payment in the last month - we first observed a significant rise in the second half of 2020. At this time the rate increased significantly from 4.2% in July-September 2020 to 6.5% in November 2020-January 2021. This increase pre-dates the cost of living crisis. This could simply reflect a return to pre-pandemic missed payment levels in the final few months of 2020 - for example, many households made use of payment holidays early in the Covid-19 pandemic [1] and were spending less (the ONS observed a large fall in direct debit failure rate between March 2020 (0.64%) and June 2020 (0.42%)). It is not possible to see pre-pandemic missed payment rates in our chart below as we only started collecting missed payments data in April 2020.

Households’ monthly missed payment rates were then fairly steady in early-2021, staying around 6.5% before rising again in late-2021 with the onset of the cost of living crisis. Ever since then our missed payment rate has remained very high - the three-month average has not dropped below 7% since, consistently ranging between 7.1% and 8.5% since January 2022. 

There are some early signs that the missed payment rate may be starting to improve in 2024. We saw a large fall in February 2024, however, the average missed payment rate over the past three months (February-April 2024) remains high at 7.5%, showing that a large proportion of consumers are still struggling to pay essential household bills each month. It is still not clear whether there is a genuine downward trend in missed payments from the currently elevated level. 

Monthly missed payment rates over the last four years (monthly averages over the past three months)

Financial adjustments

The trend in our financial adjustment rate, which is experienced by a much larger proportion of households, is slightly different. Financial adjustments remained low during the height of the Covid-19 pandemic, and in fact fell during the first half of 2021 to a monthly average of 37% between March-May 2021. The rate then rose dramatically in late-2021 and throughout 2022, when prices began to rise rapidly. We saw our highest level of financial adjustments between August-October 2022, when six in ten (61%) households reported making at least one adjustment in the past month. 

Since 2022 the proportion of UK households making adjustments has slowly fallen, with the rate being around 55% to 59% in 2023, and is now at 53% (the monthly average between February-April 2024), the lowest level since March 2022.

Monthly financial adjustment rates over the last four years (monthly averages over the past three months)

This data reveals a divergence in trends between the adjustment rate and missed payment rate since mid-2022. While the level of adjustments is still high by historical standards, it has clearly been on a downward trend, potentially reflecting rises in real wages in the economy. On the other hand, the missed payment rate has yet to show any substantial improvement, suggesting that those experiencing the most acute financial difficulty are experiencing less recovery in their household finances. This indicates that those who were ‘Anxious and At Risk’ or ‘Cut off by Cutbacks’ in our Cost of Living Segmentation last year might just be a little less squeezed in 2024. In contrast, the ‘Drained and Desperate’ are not seeing as much relief.  

This divergence in improvement amongst certain groups can also be seen in the trends in adjustment rates by income, where we have observed larger falls for higher income groups. The proportion of households with incomes between £21,001 and £41,000 has fallen from 60% in July-September 2022 to 53% in February-April 2024. A similar fall from 58% to 48% can also be observed amongst households with incomes above £41,000. The same cannot be said however for households with incomes under £21,000. For this group, the monthly adjustment rate has only fallen 3% over the same period. This again indicates that many households on the lowest incomes are continuing to struggle with the cost of living and their situations are not significantly improving.

Financial adjustment rate by income groups (monthly averages over the past three months)

What about mortgage holders?

The cost of living crisis has not impacted all groups equally. Mortgage holders renewing at much higher interest rates have seen some of the biggest increases in monthly expenditure. Last month we saw a large rise in missed payment rates among mortgagors, predominantly driven by rises in missed household bills, credit card or loan payments, suggesting that mortgage holders may be prioritising their mortgage payments over these. 

When interest rates rose during the cost of living crisis we saw a slow increase in the number of mortgage holders missing at least one essential household payment. The average monthly level of missed payments amongst mortgagors was 4.8% in 2021, 5.9% in 2022 and 6.5% in 2023. There are little signs of this improving as the rate remains high in 2024, with the average monthly missed payment rate being 6.3% so far this year. Hundreds of thousands more households will renew onto higher rates in the remainder of 2024.

Monthly missed payment rates amongst mortgage holders (monthly averages over the past three months)

Long term trends in consumer confidence

We have collected data on consumer confidence for a longer period of time, starting in July 2016. However, it is only from February 2020 that we collected it monthly and we will only look at that period now.

Unsurprisingly, confidence in future household finances and the UK economy was extremely low in the first half of 2020 when the UK was gripped by the first Covid-19 lockdown. Over the next year both these metrics recovered rapidly, reaching peak average levels of +8 (future household situation) and +10 (future UK economy) in April-June 2021. The onset of the cost of living crisis then saw a rapid decline in consumer confidence to lows of -46 (future household situation) and -64 (future UK economy) in August-October 2022.

A similar trend can also be seen for consumers’ rating of their current household financial situation over the same period. For this metric we also saw the highest average level in the last four years in April-June 2021 (+42) and lowest level in August-October 2022 (+14).

Each of these metrics have recovered to averages of +21 for current household situation, -6 for future household situation and -26 for future UK economy in the past three months. It is interesting however to analyse which of these have recovered the most, from trough to peak.

Current consumer confidence in their future household situation (in February-April 2024) has recovered the most since August-October 2022, recovering by 74% to its April-June 2021 level. Confidence in the future UK economy comes in second at 51% recovery rate and confidence in their current household situation recovering only 25%. 

Future consumer household confidence has recovered the most (monthly averages over the past three months)

Summary

Reflecting on the last four years of data on financial difficulty and consumer confidence, we can get a sense of the impact that the Covid-19 pandemic and cost of living crisis have had on consumers. Consumer circumstances improved at the start of the pandemic, then worsened rapidly during the cost of living crisis with household situations being at their worst in late 2022. Since then consumers’ household finances have improved for some groups of consumers but not for all. From our financial difficulty metrics we can see that consumers who are the worst off are still struggling deeply with living costs. And from our data on consumer confidence we can see that consumers’ are becoming more optimistic about their future household situation, despite their rating of their current financial situation recovering much more slowly.

Methodology

Fieldwork for Which? 's Consumer Insight Tracker is conducted monthly by Yonder. The latest wave of data collection took place between 12th to 14th April 2024. A sample of 2,082 consumers was surveyed online and weighted to be nationally representative.

Footnotes

[1] Between April and June 2020 roughly 9% of households reported using a payment holiday each month. This dropped to 5.9% in January 2021. Source: Which? Consumer Insight Tracker. ↑

Contact us at consumerinsight@which.co.uk for more information.