According to the Financial Conduct Authority, nearly half of UK adults show signs of financial vulnerability, while around one in five rely on family or friends during periods of hardship. Behind that second figure is a form of economic life policy rarely sees: the informal network of relatives, friends and neighbours who help absorb a shock before it becomes a crisis.
Dr Junaid Arshad, Assistant Professor in Industrial Economics at Nottingham University Business School, has just been awarded a prestigious Economic and Social Research Council (ESRC) New Investigator Grant to study exactly this. Over three years, his project will examine something most of us rely on at some point but rarely think of in economic terms: how people lean on those around them when money runs short, why those arrangements hold in some cases and collapse in others, and what that means for the way governments try to help.
"We tend to think of financial resilience as something stored in savings accounts or reflected in the limit on a credit card," Arshad says. "In reality, some of it is also stored in relationships."
A simple example of this social phenomenon Arshad gives is when someone loses their job, or faces an unexpected bill. "Many people do not immediately turn to a bank or a government programme - they first turn to family or friends," he says. "One person might lend money, another might help with childcare, and someone else might offer temporary accommodation. Collectively, these relationships can absorb a financial shock that would otherwise be very difficult to manage."
But these arrangements are fragile, and understanding why they hold or break is the heart of Arshad's work. His project develops a new framework he calls Behavioural Network Economics, bringing together behavioural economics, network theory and a series of real-world experiments. It will also draw on credit data, supplied by Experian, to map how these networks of support are structured.
Traditional economics tends to assume people are rational and self-interested. Arshad starts from a more human standpoint: that decisions about who to help, when to ask, and whether to repay are shaped as much by emotion, fairness and obligation as by cold calculation.
"These systems don't always work," he says. "If several people in the same network are struggling at the same time, or support becomes concentrated on a few individuals, the burden can become unsustainable. Some people may be excluded altogether because they have weaker social connections."
Where someone sits in the network is important too. A person with a large family, or who regularly attends a church, mosque or temple, tends to be more connected, and often ends up as a hub, giving and receiving more help than most. That brings a hidden risk. If that central figure gains access to formal credit and steps back from the informal system, the network around them can come apart, leaving the least connected members, often those already most exposed, with nowhere to turn.
This is where Arshad's findings become awkward for policymakers. The instinct, both internationally and in the UK's forthcoming National Financial Inclusion Strategy, is to bring more people into the formal financial system. He does not argue against that, but warns it is only half the story.
"If one member of a network gains access to credit, insurance or welfare support, that can create spillovers across the wider network," he says. "In some cases it strengthens informal support by making that person more resilient and better able to help others. In others, it reduces transfers, weakens reciprocal obligations, or leaves more peripheral members exposed." Not everything, he argues, needs to be formalised.
The question has obvious local resonance. In places such as Nottingham and Leicester, where financial pressure is unevenly distributed across communities, Arshad's work suggests that better data could help identify not only who is financially vulnerable, but who sits at the edges of the networks that might otherwise protect them.
The project, which begins in August and runs for three years, is supported by partnerships with the FCA and Experian, alongside academic collaborators at the University of Siena and Nottingham. Junaid hopes the work could have an impact on financial resilience policy in the UK.
"In practical terms, this could mean designing welfare, credit and financial inclusion policies that complement rather than crowd out family, friendship and community-based support," Arshad says. "It could also help identify households who are not only financially vulnerable, but socially isolated, and therefore especially exposed to income shocks."