OVER HALF OF low-income households have engaged in “risky” financial behaviour in order to cope with the cost-of-living crisis.

That’s according to a new report from the Economic & Social Research Institute (ESRI) which has been published today.

The ESRI’s Behavioural Research Unit surveyed over 1,600 low-income households between May and June 2024 for the report.

Cost-of-living crisis

Participants reported on changes they made in their day-to-day spending, borrowing and saving due to the cost-of-living crisis, which is defined as the period following the Russian invasion of Ukraine in February 2022.

The report found that 87% of low-income households have cut back on day-to-day spending as a result of the cost-of-living crisis.

The most common cuts were to groceries (63%), clothing and footwear (60%) and electricity and heat (53%).

Meanwhile, some 54% of low-income households have undertook at least one measure described as “risky” financial behaviour.

Such high-risk measures include entering arrears, increasing debt, cutting back on health spending, taking a mortgage or loan payment break, and cutting back on savings or a pension.

The ESRI classify such actions as “risky” due to their potential for long-term negative consequences.

And while 54% of low-income households have undertaken at least one risky financial response to cope with the cost-of-living crisis, this figure is 79% for households in deprivation.

Some 15.7% of people live in deprived households, according to the latest figures published by the Central Statistics Office.

Material deprivation is an inability to afford two or more items from a list of ten essentials.

Stress

Meanwhile, these high-risk measures are also associated with poorer mental health.

On a 7-point scale, where 7 means ‘very stressful’, entering arrears was given an average response of 6.

Other forms of debt and reductions in savings were also rated as highly stressful (averaging above 5 on the scale), as was cutting back on electricity, heat, and healthcare.

Households with children under 18 were more likely to report at least one high-risk measure (66% vs 46% of those without) and they also reported greater levels of stress on the 7-point scale (4.4 vs 3.9).

The study meanwhile 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.

Benefits and supports

Elsewhere, the ESRI said there is evidence of a low uptake of benefits due to the complexity of the eligibility criteria.

For example, 58% did not use a Medical Card or GP Visit Card and the most common reason given for this was ineligibility, yet over three-quarters of the sample would likely be eligible based on their incomes.

And fewer than half of renters reported availing of one of the Rent Tax Credit, Rent Supplement or Housing Assistance Payment.

The ESRI remarked that there is “reason to suspect administrative burdens impede take-up”.

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.

Meanwhile, only 37% of low-income households availed of at least one support service, such as Citizens Information, St Vincent de Paul, or MABS.

Of these, 33% did so for the first time.

Participants were also asked to indicate three areas where they would like additional support.

Energy bills were most often chosen, with 50% choosing this need.

Other areas of concern included day-to-day expenses (32%), health costs (22%), and rent or mortgage costs (22%).

‘Complexity of welfare system’

Dr Lucie Martin, co-lead author of the report, remarked that the “complexity of the welfare system may have blunted its effectiveness during the crisis”.

She said that simplifying the welfare system, for example, though a single point of application or benefit calculators, might reduce the time, effort, and frustration involved, which would help vulnerable households get the support they need.

Fellow co-lead author Dr Diarmaid Ó Ceallaigh added that the financial changes households have 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,” he said.