Consumers should 'stress-test' their finances to see whether they could weather a financial shock, the Financial Services Authority (FSA) has warned.
The FSA's Financial Risk Outlook report warned that too many households were leaving themselves a narrow margin of error, pointing to prevalent signs of consumer distress including rising numbers of mortgage repossessions and a record number of personal insolvencies – over 100,000 – in 2006.
Further interest rate rises this year could push the debt burden on many households to the edge, the report warned, with one million people already behind on debt repayments.
"Consumers should consider how they would manage their existing debt in the event of any disturbance to the present favourable economic circumstances," commented FSA chairman Callum McCarthy.
"The various trends in place now mean that were something to go wrong it would have a much bigger impact than two or three years ago," he added.
Possible shocks cited in the report include a collapse in the housing market, a major financial downturn, a terrorist attack or a human influenza epidemic.For more information about income protection, click here.
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