British households are likely to see a decline in their financial resilience this year, amid increases in consumer spending, inflation and higher interest rates, reads a report predicting that Britons will dig into accumulated cash in the pandemic.
But the decline will still leave the average household in a stronger financial position than before Covid-19 struck, according to the Oxford Economics forecast, backed by investment platform Hargreaves Lansdown.
The average resilience level, which rose from 54.5 in 2019 to 57.7 in mid-2021, will drop to 56.2 by the end of 2022, according to the report, which combines in one barometer 17 indicators on household finances, including data on savings, debt, pensions and life insurance.
However, the overall figures hide sharp differences between richer households, which are in a position to spend the money saved during the pandemic by scrapping holidays and leisure activities, and poorer homes, which remain under financial pressure, Oxford Economics said .
In mid-2020, the resilience barometer reading for low-income households was only 41.7 versus 69.2 for high-income households. Young people lagged far behind older people – with a score of 47.1 for Generation Z versus 60.8 for baby boomers.
As the authors said, all income groups incur debt. But the poor have less control over their loans: more than 15 percent of low-income households are behind with (non-mortgage) repayments, more than four times the national average.
Less than half (41.2 percent) of families have enough assets and life insurance to cover mortgage obligations and children’s future living expenses in the event of the main income earner’s death, the authors said. Among single-parent households, the figure is only 16.6 percent.
More generally, a third of the UK does not have enough savings to cover three months’ essential expenses, with the self-employed appearing particularly vulnerable, the research group said. The self-employed also have smaller pension pots, although they tend to have slightly higher levels of home ownership and overall household wealth.
“If we’re serious about improving financial resilience for everyone, we need to make saving and investing an everyday activity for everyday people,” said Chris Hill, CEO of Hargreaves Lansdown.