When you think of the word “vulnerability”, you might not associate it with money or finances.
But as the cost of living crisis continues to take hold, it is important to be aware of how financial vulnerability could be affecting the lives of your loved ones, your employees, and even you.
Keep reading to discover how financial vulnerability is defined, the key signs you could look for, and how to handle cases of financial vulnerability as a business owner.
The Financial Conduct Authority has introduced guidance around financial vulnerability
The Financial Conduct Authority (FCA) has released guidance around financial vulnerability. While aimed at financial advisers, these guidelines could help you to identify potentially vulnerable employees and loved ones.
The FCA says, “Our view of vulnerability is as a spectrum of risk. All customers are at risk of becoming vulnerable, but this risk is increased by having characteristics of vulnerability. These could be poor health, such as cognitive impairment, life events such as new caring responsibilities, low resilience to cope with financial or emotional shocks and low capability, such as poor literacy or numeracy skills.”
The FCA goes on to say that its research, carried out in 2020, found that 53% of adults displayed “characteristics of vulnerability”. Of course, this figure might have been influenced by the presence of the Covid-19 pandemic, but even without lockdowns in place, it seems that a large portion of the UK population could be considered financially vulnerable.
Let’s explore some common examples of financial vulnerability in greater detail.
5 key examples of financial vulnerability
1. Illness or disability
Becoming seriously ill could make you financially vulnerable for a number of reasons. You could spend an increased amount on care, medication, transport, or home updates – and may need to work less while you recover.
Similarly, living with a disability might limit your ability to work over the long term, making it difficult to earn enough to sustain your and your family’s lifestyles.
2. Bereavement
Bereavement is an extremely challenging time for anyone, and with life’s challenges often comes an element of vulnerability.
You could feel overwhelmed and have difficulty sleeping, all of which might contribute to clouded judgement where money is concerned.
3. Divorce
Many aspects of your life may change when you go through a divorce, and your wealth situation is no exception.
You may be required to split your shared assets, lose access to your partner’s monthly income, and need to move house. All of these life events could make you vulnerable, and may mean you require professional financial guidance to protect your wealth from being too harshly affected.
4. Caring responsibilities
Caring for a loved one during a period of illness can be very stressful and may limit your ability to work full-time. This situation could span months or years, and over time, you may become vulnerable as your financial wellbeing decreases.
5. Mental illness
While the stigma around mental health has reduced vastly in recent years, it can still be hard to open up if you’re struggling.
Living with mental illness, including depression (which Champion Health says affects up to 56% of UK workers) could make you less resilient to life changes. As a result, you could have a hard time managing your money effectively, which may affect your quality of life over time.
Financial planning could help you handle financial vulnerability as a business owner
Perhaps the most common misconception about financial vulnerability is that “it won’t happen to high earners”.
Although those in low socioeconomic circumstances are certainly at greater risk of financial vulnerability, anyone can become financially vulnerable if they are met with unexpected events such as the ones explored above.
As a business owner, your employees and loved ones may be susceptible to financial vulnerability even if you don’t realise it.
To increase awareness of this issue and support financially vulnerable individuals where you can, you might consider:
- Introducing a package of employee benefits that includes financial advice, mental health support, or a healthcare cash plan
- Regularly checking in on employee wellbeing in one-to-one meetings
- Ensuring that employees have enough time off work if they are ill, bereaved, or going through another difficult life experience
- Looking after your own wellbeing and setting an example of appropriate work-life balance.
When it comes to your own finances, working with us might help you overcome periods of vulnerability (or even just financial stress).
Financial planning could help you manage life’s transitions, including divorce, bereavement, and illness, as well as the positive changes, such as the birth of children and grandchildren.
With an independent financial planner by your side, you might feel more confident about navigating your personal finances, especially as a busy entrepreneur without much time on your hands.
Get in touch
There is no shame in being financially vulnerable. If you, your employees, or your family members need help managing money and building a more secure future, we can help.
Email us at [email protected], or call 01273 076 587.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
