The Financial Conduct Authority is warning about the impacts of high-cost credit on consumers in the UK.
In particular, it is concerned about expensive overdraft fees, rent-to-own schemes, home-collected credit and catalogue financing.
Shocking stats released by the watchdog last month revealed that in the year to June 2018 over 5.4 million high cost credit loans were taken out.
More worrying, despite borrowing a total of £1.3bn, consumers have repaid £2.1bn so far.
Outrageously high interest rates mean that on average, people are paying back 165% of the cost of their original loans.
The watchdog is exploring a raft of measures including new rules around overdraft fees and looking at ways to give people access to more affordable finance.
But until this happens, it’s clear that too many UK consumers are turning to expensive borrowing on regular basis.
And it’s not just people on low incomes or those who are out of work who are struggling.
Our DNA of financial wellbeing research found that 50% of workers in the UK need to regularly borrow to make ends meet.
That means that for most employers half the workforce is struggling to pay their bills and get by day to day.
Workers who turn to high cost credit to cover the everyday cost of living can find themselves in rapidly spiralling debt or paying thousands of pounds extra in interest rates.
The FCA data suggests that a significant proportion of people are not well-equipped to manage their money, choose appropriate financial products or budget effectively so that they have enough funds to last from pay cheque to pay cheque.
This issue is particularly prevalent among younger workers. Between rising rents and stagnating wages, young employees are really struggling to get by.
37 per cent of payday loan borrowers and 29 per cent of short-term instalment borrowers are aged 25 to 34. And 70 per cent of UK workers under 35 say they need to borrow every single month to pay for their bills.
This over-reliance on high cost credit proves that working adults need better access to financial education.
Debt charities can be a great source of support for people who are already overwhelmed by debts, but we need financial education to start much earlier to stop people borrowing money they can’t afford to repay in the first place.
Good financial understanding can also help stop people turning to expensive overdrafts or payday loans when there are cheaper forms of financing available. It helps people make the best possible financial decisions for their individual situations.
We believe that employers can and should do far more to help their staff manage money worries.
And there is evidence that employees are looking for this support. 55 per cent of staff said they’d welcome more help from the companies they work for.
By providing financial wellbeing programmes, businesses can give their workforce the tools and guidance they need to manage their finances better, reducing stress and improving productivity in the workplace.
Employers are well placed to provide technical guides, budgeting plans, tips for saving money, and calculators to help people get to grips with their finances. All of this can be delivered through work emails, via intranets or even with posters around the office. And companies can position themselves as a trusted source of financial guidance. This makes sense, too. Auto-enrolment means that the majority of UK workers are already getting pensions help from their employers, so it’s a small step to start offering financial wellbeing programmes that also help with debts, short-term savings and budgeting.
Companies may also want to think about offering savings vehicles, loan products and even access to independent financial advice.
Absenteeism and lack of productivity because of financial worries costs UK businesses £120.7bn each year. But it’s those companies who are best placed to tackle financial illiteracy among staff and help people develop better money habits too.
Helping employees to be better at managing money is not only the “right” thing to do, it makes great business sense too.