A think tank estimates that around 1.3 million British families had no savings prior to the worst cost-of-living crisis of our time.
Without a savings cushion, many will rely on family and friends to pay unexpected bills. Others will believe they are unable to handle the situation, according to research by Resolution Foundation. The full report will be published later in the week.
In partnership with abrdn Financial Fairness Trust and the Foundation, the Foundation’s third annual wealth audit of Britain examined how high debts and a lack thereof can impact families’ ability to deal with the current cost of living crisis.
The Foundation stated that nearly half of British families had savings of less than one month’s income in the time leading up to the coronavirus epidemic (2018-2020). Only 4%, or 1.3 million families, had any savings.
Low levels of savings are quite common in society. However, the report showed that the poorest tenth was four times more likely to say they had no savings than the richest tenth, with 8% versus just 2%.
According to the Foundation, this savings gap will only have grown during the pandemic. The Foundation found that the wealthiest fifth of families was four times more likely to claim they were able to increase their savings through lockdowns than the poorest fifth (47%) versus 12%).
The Foundation stated that this lack of savings is crucial for families’ ability to deal with rising cost pressures and unexpected expenses such as the current spike in energy bills.
Nearly a third of families without savings (32%) stated that they were unable to pay unexpected expenses. Only 3% of those with adequate savings agreed.
The Foundation noted that rising living costs have a widespread impact on many households and many are facing higher bills this winter. Therefore, it is less likely that people will be able to seek financial help from others than they would in “normal” times.
The think tank found that those with outstanding debts or owing money are twice as likely to experience anxiety than those who don’t have them.
Low-income families are particularly vulnerable to problems with debt. Bill arrears account for approximately 12% of their monthly income.
The Foundation aims to improve living standards for people with low- or moderate incomes.
The government has previously announced a cost-of-living support package that includes a £650 payment to over eight million households on Universal Credit, Tax Credits, Pension Credit and legacy benefits. Separate payments of £300 to retired households and £150 for people who receive disability benefits were also made.
From October, households will get a £400 discount on their energy bills
For its research, the Foundation used the Office for National Statistics’ Wealth and Assets Survey (ONS) Wealth Survey.
Molly Broome of the Resolution Foundation said that Britain’s enormous wealth divide means that approximately 1.3 million families, especially those with low incomes, have entered the pandemic, without having saved a penny.
“With many families now unable to save during lockdowns they are now facing the greatest cost-of-living crisis in a generation without any financial buffer.
“Families without savings are heavily dependent on their friends and families to cover unexpected expenses. But, it’s not certain that they will be able to support you, as the rising energy costs have a major impact on almost all households in the winter ahead.
“Families without a savings safety net have much higher anxiety levels than those who have savings.
We need to end the cycle of low savings and low growth that leaves many families vulnerable to economic shocks.
A spokesperson for the Government stated that they understood people’s struggles with rising prices. Therefore, we took action to protect eight million families in Britain by making at least £1,200 in direct payments this year. We also support pensioners and claimants of disability benefits.
Our £37 billion support package is also saving the average employee more than £330 per year through this month’s national insurance cut. This allows people on universal credit to keep £1,000 more of their earnings and reduces fuel duty by 5p. This is the largest ever fuel duty rate cut which saves a family £100.
On Wednesday, July 20, the Resolution Foundation’s Wealth Audit 2022 will be published in partnership with abrdn Financial Fairness Trust.
