Understanding the effects of health and caregiving dynamics on credit usage and financial distress
The current increase in interest rates heightens concerns about the ability of households to meet their credit burden. Past research suggests that financial distress is often triggered by a sudden change in circumstances, such as job loss, ill health and changes to the household composition, which disrupt household budgets. However, much of this research is based on cross-sectional data.
This study analyses longitudinal data from Understanding Society from 2009 to 2021, to which credit file data from one of the largest UK credit reference agencies have been matched. The latter give monthly information about credit products owned, their type, outstanding balances and scheduled repayment accounts. The main aim of the research is estimating the relationship between critical life events – the onset of ill health and becoming a caregiver – on the one hand and credit balances and the probability of entering credit arrears on the other hand. The research will also examine differences of these effect between age, gender, income, and ethnic groups because of variations in their resources to deal with the sudden changes. The findings will provide estimates of the effects of critical life events and identify socio-demographic groups that are particularly vulnerable to these shocks. The findings can be used by regulators to draw up policies for helping customers to manage problem debt. In addition, they will be valuable for advice and support provided by charities to individuals affected by problem debt in the context of critical life events.
