The economic impact of debt advice

1. Context
2. The study
3. Key findings
4. Points to consider

Context

Although personal debt can have a positive economic role in terms of smoothing consumption over an individual’s lifetime, policymakers are concerned about the increase in non-mortgage consumer debt. Debt advice has the potential to help people to resolve their debt problems and avoid engaging with illegal moneylenders, which could worsen the situation. Previous research by Baker Tilly and published by StepChange analysed the social impact of debt advice. This research builds on the findings of that study, to explore the economic impact of debt advice.

The study

The Money Advice Service (MAS) commissioned Europe Economics to conduct this study. The study utilised a mixed-method approach to understand the economic impact of debt advice. Europe Economics conducted a literature review of academic literature and consultancy reports, followed by an exploration of emergent thinking from relevant organisations, regulators and international bodies. The research also comprised of a consumer survey of about 3,800 indebted individuals, which Europe Economics designed in collaboration with MAS and YouGov. Finally, Europe Economics also engaged with stakeholders from a range of associations and organisations in order to gain insights from their expertise across the different impact areas and explore data availability.

Key findings

The study explored the economic impact of debt advice in several key areas:

• Improved mental wellbeing: The study found that debt advice had beneficial impacts upon the incidence of depression, anxiety and panic attacks. Estimates indicate that the benefit in terms of reduced mental health care costs due to debt advice is between £50 million and £93 million per year.
• Improved productivity: The study found that financial distress is a significant cause of lowered productivity in the UK, either through absenteeism or presenteeism-based effects. The study estimates that the annual reduction in absenteeism and presenteeism avoided due to the provision of debt advice is between £67 million and £137 million per year.
• Improved creditor recovery and more efficient recovery process: The study highlighted that debt advice can have a beneficial impact on creditors through improving the recovery rate of problem debt as well as lowering creditors’ costs of pursuing debtors. The researchers estimate that the benefit, in terms of additional creditor recovery and reduced costs, is between £268 million and £596 million per year.
• Reduced risk of entry to further debt cycles: The evidence is less clear on this outcome, as the timescales of the primary research were not long enough to investigate it. However, the study estimates that the value of deferring consumer entry into a second debt cycle is in the range of £25 million to £48 million.
• Other potential impacts: The study also highlighted some other potential impacts of debt advice, although the evidence base is not strong enough to draw any firm conclusions. The other potential impacts include: improved business continuity for the self-employed, improvements in family relationships, reduced risk of homelessness, delayed entry into a care home, reduced incidence of desperation crime and increased credit access.

Points to consider

• Methodological limitations: As the survey was undertaken online, it was not necessarily reflective of the offline population. Although YouGov took steps to mitigate any demographic differences, there were some characteristics they were not able to account for which could have led to sampling bias.

Full report

The economic impact of debt advice - full report