What's Happening?
A recent survey conducted by Fair4All Finance, in collaboration with polling firm Ipsos, indicates a growing trend of individuals turning to family and friends for financial assistance rather than utilizing
Buy Now Pay Later (BNPL) loans. The survey, which included over 4,000 adults from England, Scotland, and Wales, found that 26% of respondents borrowed from family, while 25% used BNPL services, and 15% borrowed from friends. This shift is largely attributed to individuals being denied traditional financial services like bank loans. The survey highlights that younger adults, households with children, and those on zero-hours contracts or in lower-paid jobs are more likely to seek financial help from personal networks. However, borrowing from family and friends can strain relationships, with 9% of family borrowers and 17% of friend borrowers reporting weakened relationships due to repayment expectations.
Why It's Important?
The trend of borrowing from family and friends instead of formal financial services underscores the financial vulnerability faced by many households. This shift could have significant implications for the financial services industry, as it suggests a lack of access to affordable credit options for certain demographics. The reliance on personal networks for financial support highlights the need for more inclusive financial products that cater to those who are underserved by traditional banking systems. Additionally, the potential strain on personal relationships due to financial borrowing could have broader social implications, affecting community cohesion and individual well-being. The findings also raise concerns about the potential rise in informal lending practices, such as loan sharking, which can exploit financially vulnerable individuals.
What's Next?
The survey results may prompt financial institutions and policymakers to explore ways to expand access to safe and affordable credit options. Organizations like Fair4All Finance advocate for the development of financial products that do not jeopardize personal relationships. There may also be increased efforts to educate the public on the risks of informal lending and the importance of formalizing borrowing agreements to protect both lenders and borrowers. Additionally, there could be a push for regulatory measures to ensure that financial services are more accessible to those in precarious employment situations or with lower incomes.
Beyond the Headlines
The reliance on family and friends for financial support reflects deeper systemic issues within the financial sector, such as the exclusion of certain groups from mainstream financial services. This trend could lead to a reevaluation of creditworthiness criteria and the development of alternative credit scoring models that better reflect the realities of those in non-traditional employment. Furthermore, the emotional and relational impact of financial borrowing within personal networks could lead to increased demand for financial literacy programs that emphasize the importance of managing personal finances and understanding the implications of borrowing.
