The general financial uncertainty created by the COVID-19 pandemic has resulted in over a third (37%) [1] of UK savers acknowledging they’re under-prepared for a financial emergency and have started to build a rainy day fund.
Bigger financial cushion
However, while many admitted their need to build a bigger financial cushion, the findings highlighted wide geographical differences across the UK. In Edinburgh, only a quarter (24%) of people said the pandemic has prompted them to build up funds for a financial emergency, half the number of those living in London (47%). Rainy day funds help people cope with life’s unforeseen events and play an important role for short- and long-term planning. The general rule is that people should build a financial cushion, with six months’ worth of living expenses regarded as a good starting point.
Year’s worth of savings
Unfortunately, a quarter (24%) of people in the UK would struggle straight away with no rainy day fund to fall back on and almost a third (31%) would run out of money within three months. At the other end of the scale, a fifth (21%) of people have more than a year’s worth of savings in their rainy day fund, with the average covering eight months. Having a cash buffer is particularly important for those approaching or in retirement, helping to protect their pension savings during volatile market conditions. However, with over a quarter of over-55s having no rainy day fund, there is a danger that dipping into retirement savings at a time when the value has fallen will deplete their funds more quickly should there be further falls in stock markets. Having access to emergency cash funds can help tide them over while markets recover.
Financial ‘haves’ and ‘have nots’
Unfortunately, a lack of savings or a savings pot that has already run dry means the immediate priority for one in four people is simply ‘just getting by’. The stark reality is that the longer the coronavirus crisis continues, the more people will find themselves in that predicament, underlining the real need of safety net savings. There is clearly a contrast in the UK’s financial health between the financial ‘haves’ and ‘have nots’ and an individual’s ability to manage their money. While the economic outlook has prompted many to begin building a rainy day fund for the first time, others have been exposed as being perilously under-prepared.
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Source data: [1] Opinium surveyed 2,000 adults for Aegon between 23 Oct – 26 Oct 2020
