By: David Webber, MD, Intelligent Environments
Christmas festivities may be a distant memory but many people are now suffering from “debt hangovers”, following this busy shopping period. According to recent figures published by the Bank of England, families borrowed a total of £1.5 billion in November. Additionally, The Office for National Statistics has revealed that consumer credit, made up of credit cards, loans and overdrafts – saw its strongest increase since early 2008 in the run-up to Christmas.
According to Gillian Guy, head of Citizens Advice, this spike in consumer borrowing should raise concerns, as debts can easily spiral out of control past the festive season. But unfortunately, our research suggests this was unavoidable with nearly a third (31 per cent) of consumers considering it essential to run into the red in order to adequately fund Christmas.
This reliance on credit to fund major events such as Christmas may be the reason for a rise in zero per cent borrowing. These borrowing routes are popular with many banking customers, but unfortunately can mean many people get caught out. A recent report by the Fairbanking Foundation found that 41 per cent of people who opted for zero per cent cards for purchases failed to clear all their debt at the end of the period, while 45 per cent who took out cards to transfer balances failed to clear the debts. The rise in zero per cent borrowing highlights the perils of using balance transfers to help clear debt.
Christmas can be a stressful time as it is, and being in debt can significantly compound that strain
In fact, our research found that half (50 per cent) of consumers have said that going into debt is one of the biggest causes of stress at Christmas.
So, what should banks be doing to help tackle this stress and how can they help their customers overcome these debt hangovers?
Our research also indicates that managing finances digitally is a good way to relieve the pressure of being in debt. 59 per cent of consumers state they would prefer to manage their finances online and 54 per cent of consumers say they would repay larger amounts of their debt if their bank provided them with a financial management tool that was linked to their bank account.
The Bank of America agrees that digital solutions can make all the difference: the bank’s Trends in Consumer Mobility Report has highlighted that with 36 per cent of Americans checking their smartphones “constantly”, there is a great opportunity for mobile banking solutions to help the consumer. The banks sends over 1.5 million alerts a day to customers which include information on low account balances and upcoming payment due dates to give their customers greater visibility, and therefore control.
In light of these findings, and following a financially challenging festive season, here at Intelligent Environments we are now calling for more banks to give their customers easier access to digital budgeting tools. Making money management easier throughout the year could make peak spending times such as Christmas more manageable. It has the potential to help prevent people going in to debt, and help those that do deal with it more effectively.
Regulated by the FCA, banks are required to put customers first as part of their business strategy. This means that if evidence shows that customers need assistance with personal financial management, banks should strive to provide it. Enabling consumers to manage their finances digitally will undoubtedly give them greater control over their debt, especially given the convenience and visibility afforded by mobile solutions. In an increasingly digital world, banks need to ensure their customers have access to the tools they need to manage their money in a quick, easy and stress-free way.