The economy is facing a range of pressures that are pushing inflation to record highs. This is causing the prices of things we need for everyday existence — from petrol to food and energy — to skyrocket.
According to the Office for National Statistics, 87% of adults in the UK reported an increase in their cost of living in April 2022 — and the situation is similar across Europe.
“The cost of living crisis affects everyone across the world,” says Ammar Kutait, chief executive and founder of W1TTY, a neobank targeting Gen Z, “resulting in your supermarket basket costing more, your heating bill spiralling and people facing tough decisions on how to balance their financial situation.”
The financial future looks dark, but could fintechs offer some light relief?
How big is the problem?
While the crisis is still worsening, Kutait says many people in the UK have already felt the squeeze.
“Costs are so high that many people across the UK are faced with a decision between heating and food, and struggling to pay for necessities, let alone extras like a Netflix subscription or new clothing,” he says.
Costs are so high that many people across the UK are faced with a decision between heating and food
However, Greg Marsh, founder and CEO of Nous, a startup that has developed a free dashboard for households to work out their expected increase in cost of living and make a financial plan, says a lot of individuals are not yet aware of how much they might need to prepare.
By polling a representative sample of UK households, Nous found “fewer than one household in 20 is aware of the scale of the problem,” says Marsh.
“The crisis is not what people already feel their living costs have increased by, it’s how much more serious, how much further those flood waters are going to rise and how little preparation most households have done in anticipation,” he tells Sifted. “We’re really worried that for many households, this is going to be utterly ruinous.”
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Looking at the bigger (financial) picture
So, how can fintechs help? Kutait says the key is gaining an awareness of your individual financial situation.
“It's never healthy to be in the dark about your finances. If you're scared to check your bank or unaware of your current monetary situation, fintechs can help you,” he says.
“Fintech features like spending analysis, reported weekly, monthly or yearly, will also allow you to see the bigger picture, highlighting potential areas of improvement and opportunities for saving.”
This, Kutait says, will help people take back the power over their spending and feel more in control of their money.
Nous, for instance, uses open banking and other data to identify providers and create a personalised plan of how your bills might change. The goal is for it to become “like an autopilot” for everything associated with the financial side of running a home, from TV subscriptions to your mortgage.
“For example, by looking at your address, we can find out information about who your current energy provider is and what your annual consumption is. We can use that information to create a live and instant forecast for your given circumstances,” says Marsh. “At least it allows UK households to quickly get a view and understand how serious the problem is.”
Another fintech offering a solution is Snoop, a money management and budgeting app. It gives “snoops” — or personalised insights to try to help users save money, both on bills and overall spending.
If you're scared to check your bank or unaware of your current monetary situation, fintechs can help you
“What we’ve tried to do is to help customers by taking the cost-of-living beyond the grim headlines and use data to help people identify their own personal inflation figure in pounds and pence,” says Scott Mowbray, cofounder of Snoop. “After establishing the headline number, we’ve then been able to walk through their spending and income (line by line) to outline how we arrived at the figures and then suggest ways to offset the increases.
“Specific features include a finance tracker which finds voucher and discount codes tailored to your spending habits, upcoming bill previews, a subscription tracker and bill monitor — which makes it easy to spot where you can save money, switch to better deals at exactly the right time, and plan with confidence.”
All about education
However, it’s no use having all this information without knowing how to use it. Kutait says this is where fintechs can really help out with financial education.
“Crucial to managing and resolving debt is an in-depth understanding of your finances,” he says. “You need to be able to make informed decisions when managing your money, and this isn't easy without support or education.”
For example, W1TTY provides in-app educational support through articles on money management, true or false quizzes and gamified learning to encourage users to engage in education and learn financial tips.
Fintechs can help bridge the financial literacy gap by turning financial education into a motivating, fun and rewarding way for kids to build confidence with money
“An understanding of your finances will help you manage them as optimally as possible,” Kutait tells Sifted. “While the cost of living crisis will be difficult no matter what, you can take steps to alleviate the pressure.”
Louise Hill, co-founder and COO of GoHenry, a financial app and debit card for children, says the crisis is providing an opportunity to reassess how we are teaching kids about money.
“While it can be a daunting subject to approach, the cost of living crisis provides a perfect opportunity to start conversations around financial education with kids,” she says. “Parents might think that teaching their kids about finances is a tricky task, but there are simple and practical ways to start, which is where fintechs really come into their own.
“Fintechs can help bridge the financial literacy gap by turning financial education into a motivating, fun and rewarding way for kids to build confidence with money,” she continues. “For example, to support the theory behind the practice gained through our app and card, we launched Money Missions, which are in-app, gamified money lessons covering a full curriculum in line with national education guidelines.”
Mowbray says the cost of living has already changed the way people use fintechs.
“Customers have told us that whereas they were using Snoop for specific financial goals — for example to buy a house — the cost of living crisis has changed the way they’re using our services and in many cases they are using it to ensure they have enough money for bills, to monitor spending and ensure they don’t fall into debt,” he says.
Our research found that 74% of 18 to 24 year olds suffer from poor mental health caused by managing their finances
Kutait says more people are turning to fintech apps to save and invest.
“Fintech offers digestible and understandable investment education to help you understand how an investment works and whether it's right for you,” he says. “Many people who are in a position to invest don't do it, generally, out of fear stemming from a lack of education or understanding surrounding the topic.”
This is particularly true of Gen Z and young people, Kutait adds.
“Gen Zers are typically more susceptible to financial instability as they are often just starting out in their career and, ultimately, have had fewer years to save,” he says. “Our research found that 74% of 18 to 24 year olds suffer from poor mental health caused by managing their finances.”
However, Marsh says among all the good things that fintechs can do to help people in the throes of the cost of living crisis, there are also companies capitalising on people struggling.
“There are things that fintech companies can do,” he says. “I am also aware that there are many companies in the fintech ecosystem who, I don’t want to sound too cynical, but will be rubbing their hands quite quickly at the prospect that customers are going to need a lot of credit over the next couple of months.”
Kutait sums up: “Our W1TTY aim is to equip the younger generation with insightful and easy-to-use financial tools that will help them get a grip of their financial situation. We are working on AI-based financial tools that will create smarter systems for our young users to project, plan and evaluate their spending.”
“Ultimately it will be about creating healthy financial habits to match the needs and wants of this generation's lifestyle,” he says.