Pressure on households

Data indicates that 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 can affect long-term health and well-being as households cut back on medical treatments and healthy diets.

Numeracy levels and debt

Low numeracy skills are a significant factor linked to experiencing debt. A Government-commissioned survey found that 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 effectively with customers who struggle with numbers.

Rising household debt

Household debt is forecast 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

A report by debt advice charity, Stepchange showed 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, along with the overwhelming nature of managing multiple debts often prevent individuals from seeking help early. Many individuals do not consider themselves to be in problem debt, which further delays engagement with debt advice services.

Improving communication in debt collection

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. 

Simplification also aids self-efficacy, the customer’s belief that they can achieve the desired outcome. Ensuring that debt collection processes empower and incentivise individuals and provide clear, actionable steps can improve outcomes.

Practical tips for debt collection teams

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. Consistency: adopt consistent and clear communication across all customer interaction points, from lending to collections.

To find out more, watch our webinar featuring Professor Sharon Collard of the Personal Finance Research Centre, and Ben Perkins of Plain Numbers.