Less financially mature consumers hold £35bn of debt

Debt is expected to rise faster than income in the next two years, according to research published today by credit scoring platform Aire.

Less financially mature consumers hold £35bn of debt

Aire uses artificial intelligence to help lenders provide applicants with more accurate credit assessments.

Aire’s research, carried out among 2,000 UK adults in May, found one third of credit card and personal loan debt is sitting with people who are deemed to have low financial maturity – an estimate of £35bn.

However, the credit scoring platform found 59 percent of UK adults show good signs of financial maturity in a basic test that underlines the need for a better understanding of credit applications.

The test carried out as part of the research gave respondents a test to see how easily they could understand what a mix of different weekly and monthly commitments meant for their overall annual finances.

Respondents were asked to consider three types of commitments and point out whether they think the annual cost of all three would be above or below £1,000:

  • £9.99 Spotify music streaming (monthly)
  • £7.49 Netflix movie streaming (monthly)
  • £20.26 Payment for sofa (weekly)

Aire then used these responses as an indicator of financial maturity depending on whether their estimate was correct or not – Aire has stated this is just one indicator of financial maturity.

The research found 41 percent of UK adults have credit card debt and 13 percent have taken out personal loans. It also found 12 percent use credit to pay for domestic appliances.

The research identified further issues in the consumer credit space. It found Brits are being subtly encouraged to take out more credit than they can easily afford.

Aneesh Varma, founder and chief executive of Aire, said: “This affordability squeeze means that even if some people manage to pay down their debt, they will have to make drastic cuts elsewhere and face financial distress in the process. This hurts the economy in multiple ways beyond the financial services.

“We can get ahead of this by enhancing credit assessments across the ecosystem by deepening our understanding of an applicant’s capacity and character. And for once, technology allows us to solve this. Everyone can be better off.”