Much like the pandemic, inflation and the rising cost of living are having a vast impact on the wellbeing of many UK employees. With inflation threatening to reach 18.6% (a level not seen in almost half a century), employees are looking for ways to cope with their financial uncertainty and continue to make ends meet. 

In light of the current economic instability, financial technology is stepping up to play a key role in helping tackle individuals’ financial concerns head-on.

The rising cost of living and its economic impact

• On younger generations:

It is no surprise that the rising cost of living has had, and continues to have, a profound impact on younger generations who are trying to financially find their feet. In fact, research has shown that 47% of young people are unable or only just managing to make ends meet each month. In addition, many have an income that varies from paycheck to paycheck, resulting in budgeting difficulties.

One area causing issues for many young people during this time is student loans. Young people are being confronted with having to give up on dreams of higher education in order to pursue a career offering them a paycheck. They cannot afford to accrue student loan debt which they are unlikely to be able to pay back. A report released by Totaljobs and Career Ready, has found that 48% of 16-18-year-olds plan to go straight into full or part-time work when they finish school/college instead of higher education. Half of this age group believe that this will ultimately decrease their chances of ever working in their desired field.

• The gender pay gap:

It is a concerning observation that the cost of living crisis could worsen the existing gender pay gap. However, research indicates that women are more likely to take action to address the crisis by cutting back on essentials and luxuries within the home.

Employers previously aware of the gender pay gap should take even further action to close the gap at this time, putting measures in place to raise wages and provide benefits which help to help through financial instability.

How financial technology can help mitigate the cost of living crisis

Rising costs are presenting an ideal opportunity for FinTechs to step up and provide solutions to everyday problems such as debt management, budgeting and saving. Many providers of financial technology have quickly released tools to help people understand how to better manage their finances in this climate, learning what is affordable and how to save money on essentials such as utility bills. These tools also help people feel that they are taking tangible actions to change their situation instead of sitting back and becoming a victim of rising costs.

• Open banking:

Open banking presents an opportunity for users to be informed of bespoke financial guidance tailored to them and their specific situation. Lenders can keep an eye on what is happening in an individual's account before determining whether they can afford a specific type of loan and which loan would be best suited to their needs. Retailers can provide a list of affordable loan options to users, meaning that the risk of applying for an unsuitable loan and therefore harming their credit rating or applying for a loan that they cannot afford, is greatly reduced.

• Financial wellbeing platforms:

Financial wellbeing platforms offer support to individuals during this challenging climate. With financial education at the heart of their design, such platforms allow users to manage their finances from one place, receiving tailored guidance on how to improve their situation. For example, some platform allow users to speak to a financial adviser free of charge, receiving information on how to tackle issues such as debt, student loan repayments, buying a house and more. 

Apps can also provide help to users by enabling them to add all of their accounts in one place, set goals and learn how to work towards these. Budgeting features can be useful in showing individuals where they may be overspending, and in identifying areas where savings could be made. Apps such as these can also often access individuals' monthly direct debit information, then suggesting instances where they could change providers to increase savings and identify more affordable car insurance and energy providers. Interestingly, the combination of older people turning to the use of platforms and apps to cope with the current crisis, and younger people who are already technology-driven and struggling to stay afloat is likely to drive further innovation in the FinTech sector.

Conclusion

Financial technology has seen a real spike in popularity since the pandemic and now due to the rising cost of living. FinTech companies are providing unique and innovative solutions that focus on financial education and helping users to become more financially independent. Creative designs and easy-to-use applications entice individuals to place their trust in these platforms and provide support for a way forward despite the economic downfall. Amid the cost-of-living crisis, FinTechs have an ethical duty to provide tools that can actually offer help to those struggling financially.