Some 1.3 million families across Britain had no savings before the biggest cost-of-living crisis in a generation, a think tank said.
With no savings bank to rely on, some are pinning their hopes on friends or family to bail them out if they have an unexpected bill, while others believe they just won’t be able to handle it, according to Resolution Foundation research, set to be entirely published later this week.
The Foundation’s third annual wealth audit in Britain, in partnership with the abrdn Financial Fairness Trust, examined how lack of wealth and high debt can have a major impact on how families are able to cope with the current crisis of cost of living.
In the run-up to the coronavirus pandemic (2018-2020), nearly half of households across Britain had savings worth less than a month’s income, while around 4% – 1.3 million households in total — had no savings, the Foundation said. .
While low levels of savings are quite common across society, the report found that the poorest tenth of households was four times more likely to report having no savings than the richest tenth of households, at 8% versus 2%.
This savings division will only have been reinforced during the pandemic, according to the Foundation, as the richest fifth of households was about four times more likely to say they managed to increase their savings during lockdowns than the poorest fifth (47% compared to 12). %).
This lack of savings is very important to how families are able to cope with rising cost pressures or unexpected expenses, such as the current rise in energy bills, the Foundation argued.
More than a quarter (28%) of households with no savings said they simply could not handle an unexpected expense, while nearly a third (32%) said they would need to turn to friends and family if they faced an unexpected expense, compared with just 3 % of those with sufficient savings.
The Foundation stressed that as the impacts of rising cost of living are widespread and many families are facing rising bills this winter, being able to turn to others for financial help is a coping mechanism that is less likely to be available than in other countries. more “normal times”.
Those with overdue bills or loans are also twice as likely to report high levels of anxiety as those with no arrears, at 15% versus 8%, the think-tank said.
Problem debt is a big challenge for low-income families in particular, with overdue bills accounting for around 12% of their total monthly income, he added.
The Foundation is focused on improving living standards for those on low and middle incomes.
The government had already unveiled a cost-of-living support package, including a one-time payment of £650 to more than eight million low-income families in universal credit, tax credits, pension credit and inherited benefits, with separate one-time benefits payments. £300 for pensioner families and £150 for people receiving disability benefits.
Families will receive a £400 rebate on their energy bills from October.
The Foundation used the Office of National Statistics (ONS) Wealth and Assets Survey for its research.
With many of these families unable to save during lockdowns, they are now approaching the biggest cost-of-living crisis in a generation with no financial buffer.
Molly Broome, Resolution Foundation
Molly Broome, economist at the Resolution Foundation, said: “Britain’s massive wealth divides mean that an estimated 1.3 million households – mostly low-income families – have entered the pandemic without any savings.
“With many of these families unable to save during lockdowns, they are now approaching the biggest cost-of-living crisis in a generation with no financial buffer.
“Families with no savings rely heavily on friends and family to deal with unexpected expenses. However, there is no guarantee that they will be in a position to provide support as rising energy bills affect almost every home during the difficult winter ahead.
“As a result, anxiety levels among families without a savings safety net are much higher than those with savings to draw on.
“We need to break this cycle of low growth and weak savings that leaves so many families brutally exposed to economic shocks.”
A government spokesperson said: “We understand that people are struggling with rising prices, which is why we are taking action to protect the eight million most vulnerable British families through at least £1,200 in direct payments this year. year, with additional support for retirees and those claiming disability benefits. .
“Through our £37bn support package, we are also saving over £330 a year for the typical employee through this month’s national insurance cut, enabling people with universal credit to keep £1,000 more than they earn and cutting fuel tax by 5p – the largest has already cut fuel tax rates, which saves £100 for a typical family.”
– The Resolution Foundation’s Wealth Audit 2022 – in partnership with abrdn Financial Fairness Trust – will be published on Wednesday 20 July.