The concerning lack of ability for some people to cope with unexpected costs has been revealed as new data showed one in ten (10 per cent) of UK adults have no cash savings whatsoever, leaving them vulnerable when faced with increased bills.
More than 13m people across the nation are thought to be facing tough conditions financially, including amassing debt, have little savings or have missed paying bills.
While the headline figure of ten per cent having no savings at all is a worry, findings from the Financial Conduct Authority (FCA) actually show a far greater scale of people who have minimal ability to manage any sort of shock to their income, with a further 21 per cent having less than £1,000 saved.
Most financial experts agree that individuals or families should aim to build an emergency savings buffer of three to six months’ worth of essential expenses, depending on circumstances.
This can aid to continue paying bills and essential costs like groceries, rent or mortgage repayments in the event of sudden pressures, like health emergencies, loss of work or even surging inflation.
In addition to not having enough savings, the FCA data underlined two further issues: 2.8m people who have persistent debt through credit cards, which can be one of the most expensive ways to hold debt, along with a continuing rise in people using buy now, pay later (BNPL) services.
More than a third of women (35 per cent) aged 25-34 use these services and a full 40 per cent of single parents do so.
While some of these services do not necessarily always charge interest initially – some do of course – missing payments can be extremely costly and building up bigger repayment costs can potentially push greater debt on peoples’ future.
StepChange, a charity which helps with free advice to people struggling with debt, said in a statement they “want to see the Government invest in safe options for those who can’t afford to save to cope with unexpected costs, including a permanent national crisis support scheme, building on the Household Support Fund and a national no-interest loan scheme, and by working with the financial services industry to expand affordable, low-cost credit.”
The FCA also shared encouraging data from those who do seek help.
From 1.7m people using debt advice or services in the past year, 61 per cent “said their debts were more manageable” in the aftermath.
Compare the Market data shows more than half (52 per cent) of Gen Z – aged 16 to 28 – do not have a “rainy day fund” for emergency expenses, while more than a quarter (27 per cent) of all people who do have one have needed to use it recently to cover increased household bills and other essential expenses.
Research by wealth managers St. James’s Place shows more than a quarter of the nation feeling anxious about the year ahead in monetary terms. Alexandra Loydon, director of advice, said: “Economic challenges remain, so it’s more important than ever to take steps to make your money work harder. While building a financial plan may seem daunting, especially if you’ve never done one before, this really shouldn’t put you off.
“Identifying your key financial goals and assessing your current financial situation are the simple places to start. From there you should focus on building your emergency fund by putting aside a small amount of money each month and ensuring you’re getting the best rates of return.
“While these may seem like small steps, they all help you grasp your financial situation and take action to improve it, making a real difference to your financial resilience both now and in future.”
