One in four working households with savings (28%) have started dipping into them to meet rising living costs, according to a report from Legal & General. A further 30% anticipate they will need to do so in the next year.
With consumer prices 10.1% higher in July 2022 than a year before2, and with annual household energy costs set to rise to an average £2,500 in October 20223, many households will likely have to rely even more on the money they have tucked away. This could see household savings built up during the pandemic lost.
The average working household currently has £2,400 in savings. However, this equates to less than a month of basic expenditure for the average family, if they lost their income and were pushed to rely on their savings.
Financial security under threat
To feel financially secure, households estimate they need £12,100, or nearly five months worth of basic household expenses, set aside. However, only three in 10 working households (30%) have this set aside, and pressure to dip into savings will likely see this number fall.
Based on current savings patterns, with the average working household saving just over £300 a month, it would take three years to reach the desired financial safety net, and nine years to put aside a year’s worth of essential spending. However two-thirds (64%) of all households that currently save have either already decreased or stopped their savings habit altogether (31%), or expect to have to do so (34%), due to increased living costs.
No safety net for some
There is also a growing number of people who cannot put aside any money; nearly 1.9 million households have no money left at the end of the month, an increase of 330,000 since 2020. This is likely why 16% of households have no savings at all in case of emergency.
Bernie Hickman, CEO, Legal & General Retail:
“With the cost of basic essentials on the rise many households will find themselves having to make difficult choices and dipping into savings is likely to become more common. This is a far cry from the five-month financial safety net that people hope for.
“It can be concerning for people to feel like they have nothing to fall back on in times of difficulty. While dipping into savings is inevitable for some, there are also steps people can take to try to control their costs as much as possible by checking their regular outgoings and subscriptions, shopping around for discounts and deals and by making sure they are taking up free financial guidance services like MoneyHelper. To help people better understand their money and make informed decisions, we have put together a financial safety net content hub to help people find free tools and resources.”
Legal & General’s Deadline to Breadline report, explores financial resilience, security and engagement of working households across the UK. The report contains key ‘conversation starters’ for advisers to help with tricky questions during this difficult time for clients.