How lenders can prevent JAMs from getting stuck?

Every once in a while, a new group of people comes into the focus of politicians. In the early 2000s the priority was Pebbledash People, who were middle income families living in three-bedroom houses. Then political eyes turned to the younger Wristband Generation, who let it be known they were supporters of charities or good causes.

Now it’s people who are Just About Managing, shortened to JAMs, that are the talk of Westminster.

They have been identified as a group of people who are working hard to keep their heads above water, and politicians are at pains to find new ways of offering them support. But who exactly are the JAMs and what financial position do they find themselves in?

Our Mosaic people classification tool identifies the JAMs as financially struggling, young single parents, typically living in inner city areas. One or more member of the household tends to be in work, but their financial outgoings still far outweigh their low income levels. They tend to be based in parts of major English cities such as Nottingham, Sheffield, Manchester and Liverpool and in the Teesside area.

This group does access credit, but often it’s in the form of high-cost borrowing or even doorstep lenders. Sadly, individuals in this situation are more likely to hit very hard times when they have to pay back far more than they borrowed.

At Experian, we take a regular and careful look at the numbers and life situations of people who have become insolvent. Insolvency is when a person is unable to pay back their debts. We found despite the improving insolvencies picture overall, New Parents in Need was the Mosaic type most likely to face insolvency.

Overall there was a 14% drop in insolvencies between July and October last year, compared to the same period in the previous year. Reviewing the figures in the longer term shows Insolvencies fell by 34% over a three-year period. But despite this progress, there are still thousands of families and individuals who are facing insolvency.

In 2016 individual voluntary arrangements (IVAs) were the most common insolvency type, making up 38% of all insolvencies in the UK. Meanwhile, 29% opted for debt relief orders (DROs) and 26% chose bankruptcy in line with a similar trend for the same period last year.

It’s now more important than ever for lenders to maintain the highest standards of responsible lending, and to have a very good understanding of exactly who they are lending to. There are so many factors that affect people’s credit worthiness and lenders require a full picture of a person’s financial situation in the long-term in order to make the most appropriate decisions.

Lenders take their responsibilities seriously and are already asking deeper questions to build their understanding of an individual’s ability to repay not just in the first month of a loan, but for its lifetime - even if their circumstances were to take an unexpected turn. Experian works with a wide range of lenders to help them get a fuller picture of someone’s financial situation. 

It’s a delicate situation. It’s important that people who are just about managing have access to mainstream financial services on lower interest rates, but lenders understandably have to tread very carefully to ensure they lend responsibly. Using the best information available is the most logical route to getting the balance right.