The Impact of Financial Insecurity and Low Numeracy Skills on Debt Collection | Flexys

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The Impact of Financial Insecurity and Low Numeracy Skills on Debt Collection

Pressures on Households

The cost of living crisis has become a new normal for many UK households. Rising living costs, stagnant wages, and complex financial products exacerbate individuals’ challenges, particularly those with limited numeracy skills. Data indicates that the financial strain from rising prices has surpassed the pressures experienced during the pandemic. Lower-income households are disproportionately affected due to their higher expenditure on essentials like food and energy, where inflation has been particularly high. The impact of these high costs extends beyond immediate financial strain, affecting long-term health and well-being as households cut back on medical treatments and healthy diets.

Numeracy Levels and Debt

Poor numeracy is a significant factor linked to experiencing debt. Nearly 50% of UK adults have numeracy skills equivalent to those expected of a primary school child. This complicates everyday financial decisions and contributes to debt accumulation. Despite various educational interventions, numeracy levels have not significantly improved over the past two decades. Collections teams are looking for ways to communicate more effectivelywith customers who the education system may have let down.

Rising Household Debt

Household debt is forecasted to rise significantly, with the Office of Budget Responsibility predicting an increase to £2,429 billion by 2025. This is driven by a mix of factors, including higher borrowing costs due to increased interest rates and the necessity for some households to borrow for daily living expenses. The prevalence of consumer credit debt, particularly credit cards, underscores the financial pressures many households face.

Barriers to Seeking Debt Advice

Figures show that 55% of those in need of debt advice wait for more than a year before engaging support. Emotional factors, such as fear and embarrassment, often prevent individuals from seeking debt advice. Additionally, the complexity of financial products and the overwhelming nature of managing multiple debts contribute to delays in seeking help. Many individuals do not consider themselves to be in problem debt, which further delays engagement with debt advice services.

Improving Communication in Debt Collection

Given numeracy levels, there are good reasons to lower the difficulty of financial communications, ensuring they are clear and accessible to individuals with low numeracy and literacy skills. Plain language, visual aids, and consideration of the customer’s emotional and psychological state can improve customer understanding. Testing communications for comprehension and simplifying messages can improve customer understanding and engagement.

Simplification also aids self-efficacy, the customer’s belief that they can achieve the desired outcome. Interactions with creditors and debt advisors can either enhance or undermine an individual’s self-efficacy. Ensuring that debt collection processes empower and incentivise individuals and provide clear, actionable steps can improve outcomes.

Practical Tips 

  1. Simplify communications: use plain language and visual aids to make financial information more accessible.
  2. Test for comprehension: regularly test communications to ensure customers understand the information provided.
  3. Empower customers: design processes that enhance self-efficacy and provide clear, actionable steps for managing debt.
  4. Assume low skills: assume customers have low numeracy and literacy skills and tailor communications accordingly.
  5. Consistency: adopt consistent and clear communication across all customer interaction points, from lending to collections.

Find out how Flexys Control+ can help you reach and engage more customers, and constantly test and adapt your approaches. Talk to our team today.

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