Low-income households made high-risk financial changes to cope with cost-of-living crisis

Most low-income households had to make high-risk changes to their finances to cope with the cost-of-living crisis, according to new ESRI research. Typical changes included entering arrears, taking on more debt, or eating into savings. These decisions are linked to damaging long-term effects, including on mental health.

The research, carried out by ESRI’s Behavioural Research Unit, surveyed over 1,600 low-income households. Almost all had reduced spending on essentials like food, clothes, or energy, but most had been forced to do more, such as entering arrears, borrowing or eating into savings.

Households reported that these decisions resulted in high levels of stress. Those with children were more strongly affected and experienced higher stress.

The study found little evidence that high-risk changes to finances were linked to individual psychological traits, like financial knowledge or a tendency to prioritise immediate over future outcomes. Instead, they were predicted by life circumstances, such as pre-existing financial difficulties.

A significant finding was that vulnerable households did not obtain all available government benefits during the crisis. Only half of those on very low incomes reported having a Medical or GP Visit Card, and less than half of renters used the Rent Tax Credit, Rent Supplement, or Housing Assistance Payment. Just over one-third of households used support services such as St Vincent de Paul, MABS, or Citizens Information.

The study asked those surveyed why they did not obtain relevant benefits. Many said they were unaware of the specific benefit or did not know what it involved.

Households found applying for benefits burdensome. The Additional Needs Payment, Carer’s Benefit, Energy Hardship Fund, and One Parent Family Benefit were reported to be time-consuming and frustrating to access. Benefits that are not means-tested, like Child Benefit, were found to be least burdensome. The households that reported the greatest difficulty accessing benefits were those on very low incomes and those regularly unable to afford essentials.

Dr Diarmaid Ó Ceallaigh, co-lead author of the report, said: “These financial changes that households had to make are likely to have a lasting negative impact. The most deprived households and those with children would especially benefit from assistance beyond recent temporary measures.”

Dr Lucie Martin, co-lead author of the report, added: “The complexity of the welfare system may have blunted its effectiveness during the crisis. Simplifying the welfare system, for example, though a single point of application or benefit calculators, might reduce the time, effort, and frustration involved, helping more vulnerable households to get the support they need.”