Families are less likely to cope with financial shocks by 2022 and 15% of low-income Britons are already lagging behind on bills and debt repayments
- Families were more financially resilient overall during the epidemic
- The picture is remarkably uneven across regions and parts of society
- This year, the situation is likely to get worse with inflation, taxes and interest rates rising
- 15% of low-income people already have bills or debt repayments
More families are less likely to cope with income shocks this year, as a cost-of-living squeeze, and those with lower incomes, have a higher risk of getting into debt, new research has found.
Rising inflation and taxes, falling real wages and interest rate hikes are set to reverse the economic resilience of half of what was built during the epidemic, yet those with jobs had the opportunity to save more for a rainy day.
Britain’s overall economic resilience, as measured by the new scale from Oxford Economics and Hargreaves Lansdown, rose to 57.7 out of 100 last year, from 54.5 in 2019.
However, research shows that families are expected to return to 56.2 as they fall victim to a larger squeeze.
Money worries: 15% of low-income people fall behind bills or debt repayments
Fiscal resilience is expected to return to 56.2 as families fall victim to a larger squeeze
One of the biggest contributors to the forecasted decline is the reduction in additional income levels, as costs continue to fall back to pre-epidemic levels and so do cost of living.
Meanwhile, higher interest rates – which the Bank of England expects to gradually increase interest rates to 0.5 percent by the end of 2022 – will reduce the affordability of debt repayment.
But some segments of society are at greater economic risk than others.
Those who are already struggling to keep their head above water during the epidemic – low-income, younger people and renters – are in for another tough year.
For example, 15 percent of low-income people have already fallen behind bills or debt repayments – four times the national average.
‘With [energy] Bills are rocketing and interest on their debt is rising, and the Big Squeeze can pull them down, ”said Sarah Coles, senior personal finance analyst at Hargreaves Lansdowne.
With the economy reopening after the summer, the savings rate began to normalize, a process that is expected to continue in 2022
When it comes to money earmarked for a rainy day, over one-third of Britons do not have access to savings that cover at least three months’ worth of essential expenses.
But then again, families who are employed are more likely to have enough savings than self-employed families.
Looking at the specific ‘save a penny per rainy day’ scale, the average score of employees is 64.6 – more than the 48.1 of the self-employed, the report shows.
When it comes to pension savings – another pillar of economic resilience – families under the age of 40 percent are on track for an annual pension income of £ 26,000.
Again, some segments of society have significantly lower pensions than others: only 22 percent of self-employed have saved enough toward retirement, more than twice as many as employees.
‘A World of Difference’: Baby boomers are more economically resilient than Generation Z
Even in high-income households, a significant number are not earning enough money for retirement if they focus on their time of life.
Almost half do not have enough life cover to protect their families, while only 17 percent of single parents buy life cover.
‘When our overall resilience increases during the epidemic, our scale reveals that there is a world of difference in the experiences of those who have gone out, been able to save, and lost income,’ Coles said.
High income earners had the highest financial elasticity score of 69.2, followed by baby boomers at 60.8, while Generation Z and low earners scored lower in 47.1.
The Southeast is the most economically resilient region with 60.8 points, while the Northeast has the least regional variations with 54.4 points.