From helping those in financial crisis, we see the detrimental impact of debt on clients’ lives. Often this is to the extent of financial exclusion. The key question is, once a client becomes debt free and our support concludes, what happens next?
Today Christians Against Poverty (CAP), supported by the Financial Inclusion Commission, launches The freedom report. Exploring the long-term outcomes of over 200 clients who have become debt free with CAP’s help, the report draws comparisons between clients who were granted Debt Relief Orders (DRO) and clients repaying their debts through a Debt Management Plan (DMP).
The good news is that this research reveals 93% of CAP’s clients remain free of problem debt. The majority had adopted money management skills, allowing them to overcome the barriers that had previously prevented them from maintaining a good level of financial wellbeing.
Prior to seeking debt advice, many clients had had a complete breakdown of relationship with financial services, with many cases of people avoiding the phone or their post. We are encouraged to find that several years after suffering financial difficulty, 93% now report a positive relationship with their bank. Reinforcing that, despite facing financial exclusion, it is possible for people not only to turn finances around, but also to reintegrate into mainstream financial services following financial crisis.
The report explores two major ingredients of financial capability, saving and budgeting. Savings act as an important buffer for unexpected crises, yet in the UK only 41% of households are saving. In comparison, 46% of the clients interviewed had built up savings since becoming debt free, despite an average annual household income of just £14,511.
Financial difficulty is usually the result of unexpected circumstances, not solely poor financial capability. However, the consequences of poor financially capability are most acute when money is tight. We often see the part this plays in contributing to financial crisis, 65% tell us problems with budgeting were a contributory factor, yet our findings show that an equally high percentage, 82%, of both DMP and DRO clients reported using a budget after our service.
These results show that our carefully designed services are successful in equipping clients with the skills they need to build their financial capability and resilience to take them forward. We hope that these findings will help us all build the case for the value of debt advice and financial education in bringing positive change to struggling families.
The freedom report will be launched in Parliament later today; you can read more here.
Join in with the discussion on Twitter using #DebtAdviceWorks and #FreedomReport, and to hear first-hand the difference debt advice makes, follow #StillDebtFree.
Dawn Stobart is Director of External Affairs at Christians Against Poverty (CAP). CAP provides free, face-to-face debt help, including a home visiting and a full debt management service. CAP is also the largest provider of free, face-to-face, adult financial education in the UK.
 Family Resources Survey data in Rowlingson, K. & McKay, S., 2014. Financial Inclusion: Annual monitoring report 2014, Birmingham: University of Birmingham.