Consumer Credit in a Pandemic: How TransUnion is Tracking the Impact

TransUnion’s Director of Research, Brendan le Grange, shares insights on how the current pandemic is impacting consumer finances in the UK

On 11 March 2020, the World Health Organization officially defined COVID-19 as a global pandemic, and it has dominated UK headlines and business conversations ever since. Here at TransUnion it has been no different.

We’ve aimed the sharp end of our analytical resources at our internal credit and affordability datasets, and set team goals. Firstly, quantifying the size of the risk facing the consumer credit economy and secondly, identifying where households are most exposed to income and/or expenditure shocks.

The insights gleaned from these projects are already helping lenders better serve their ‘at-risk’ customers, but there’s also a higher-level, more human narrative that we’re tapping into, with weekly pulse surveys that reach out to 1,000 UK consumers at a time.

You may have seen the headlines reporting the broadly-felt economic impacts of the lockdown, and that’s reflected in the responses — with three out of five British households confirming they have been negatively affected; a number which has remained relatively consistent since we began our research on 23 March. There are two silver linings, though, in that this number is staying stable despite the passage of time; as our latest report shows, and since those who are not yet impacted are becoming more confident that they’ll remain immune.

That said, with an end date for the lockdown period not yet known, those silver linings are thin. Among those feeling the financial pinch, fewer think they’ll face difficulties in paying their bills within four weeks, but a growing number still expect to get to that position in one to three months’ time — so we may yet face a day of reckoning.

When consumers experience a reduction in income, we would expect the first line of defence to be personal savings. And indeed, in our surveys, this is the most commonly reported way British consumers plan to make up their COVID-19 related gap in finances.

However, recent figures from the Office for National Statistics also show that personal savings are a depleted resource in the UK. The last recession we endured came during 2007, and British consumers at the time had £28.7 trillion in savings to tide them over. Now, despite more than a decade of inflation, we only have £24.3 trillion in combined savings.

We know that these savings are not equally distributed, though. For example, when we divide financially impacted consumers by age, we see that there is u-shaped reliance on savings. Or perhaps that is a u-shaped availability of savings. While 41% of Generation Z (born 1995 onwards) include personal savings in their personal relief plans, only 32% of Millennials (1980 to 1994), 34% of Generation X (1965 to 1979), and 38% of Baby Boomers (1946 to 1964) do the same.

At first, this struck me as counter-intuitive — surely savings would generally rise with age — but I think the extra flexibility comes with being young and not yet committed to big ticket obligations like mortgages.

The fact that one in three Generation Zers mention funds from their family supports this — compared to one in four Millennials and Generation Xers, and just one in six Baby Boomers.

This might explain why it’s Millennials, and not Generation Z, who report the highest level of financial hardship to date. If we control for income, in this case by considering only consumers who reported earnings of between £30,000 and £49,999 last year, we see that 73% of Generation Z report a negative financial impact from COVID-19, rising to 75% of Millennials before dropping quickly to 67% of Generation X and 43% of Baby Boomers.

And this pattern sharpens as reported income rises. When we consider those who earned between £50,000 and £79,999 last year instead, 69% of Generation Z report financial hardship compared to 74% of Millennials and 55% of Generation X.

However, what is for now a welcome short-term buffer may have less desirable longer-term impacts if it means Generation Z emerges from this crisis without the savings necessary for a down payment on a new home or similar.

Sort of. After savings, the most common source of plan B funding mentioned is external credit, but perhaps not in the form we’d have expected. Existing credit facilities seem to be preferred to new ones — these consumers are thinking of making a partial payment or taking advantage of a payment holiday, or of using a balance transfer or refinancing their existing loans, all before taking out a new card or loan.

Nevertheless, only half of them have taken steps to contact their lenders to make such arrangements, so lenders should be redoubling their own outreach efforts. Not only will this allow them to make arrangements before the situation has devolved beyond repair, but it will enable a more constructive and holistic approach to be designed so that a series of ad hoc solutions don’t arise and cause more problems down the line.