UK households saw their savings shrink at the fastest rate for seven years in the last three months of 2020, new research into the nation’s financial wellbeing has revealed.
The Scottish Widows UK Household Finance Index reported evidence that households were using savings to finance some of their purchases at the close of the year.
Households recorded the sharpest deterioration in their savings since the final quarter of 2013, largely reflecting “a sustained squeeze” on income from employment during the pandemic.
The decline in savings meant that 20% of the 4,500 people polled by the pension firm saved less towards retirement between September and December 2020, while 19% were likely to withdraw money from their pension if they were eligible to access it early.
More than a third (36%) were saving for emergencies, while 29% were saving cash for holidays and travelling. More than one in five (22%) were saving for retirement and the same number of people were putting money aside for home improvements.
How financially resilient people were differed greatly, with 22% of households able to afford essentials – such as food and accommodation – for less than a month, while 40% were able to cover essentials for more than six months.
The amount of cash UK households have available to spend also continued to decline between September and December 2020 - with increased demand for unsecured credit, such as overdrafts and credit cards.
Jackie Leiper, workplace savings director at Scottish Widows, said: "Household savings are being severely squeezed for those who have been hardest hit by the pandemic, with around one in five households saying that lower workplace income had made their financial situation worse at the end of 2020."
“The continued pressure on families’ financial resilience and lack of protection leaves people in danger of saving less for the long-term and more for emergencies due to uncertainty over the immediate future.”
How can you improve your financial resilience?
- create a budget for your daily expenses
- manage and pay off debts before starting to save
- look at ways to increase earnings – for example, turning a hobby into a job
- if you have a partner, talk openly about your finances to ensure you have the same goals
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