Traditional spending and saving habits have been turned upside down
Household finances, including spending and saving patterns, have deteriorated drastically since the coronavirus (COVID-19) lockdown, despite unprecedented Government support. Traditional habits have been turned upside down, and household budgets that guided our incomings and outgoings before the pandemic are no longer valid.
Analysis of consumer sentiment alongside official household spending data[1] reveals the inability to save is the biggest current concern for UK adults (26%), as earnings have been disrupted for millions of workers. UK adults also cited economic and stock market volatility reducing the value of their pension or investments to be a key concern (23%), as well as an inability to pay household bills (19%).
Typical UK households
However, at the same time, spending on non-essential items has fallen as a result of government instructions to stay at home. This means that typical UK households could be spending 29% less per week in total during lockdown compared with ‘normal’ times.
But it is estimated that increased spending on items such as tea, coffee, chocolate and energy consumption and pastimes like TV subscriptions (Netflix, Sky) adds around 6% to the average household’s weekly spending.
Reduced or zero spending
This is likely to have been significantly offset by reduced or zero spending on leisure pursuits halted by the lockdown. These include holidays, house moves, eating out, clothing, hairdressers and trips to the cinema, theatre and museums, potentially reducing the typical household’s average weekly spending by 35%. Overall, this creates a net saving of 29%[2].
The data highlights that female savers look to have been disproportionately affected during the lockdown, as workers in sectors such as hospitality and retail are more likely to be younger females[3].
Uncertain financial future
Younger people across the board also face a significant challenge. Those under 34 typically struggle to save under normal circumstances, but the current conditions have exacerbated this, as this age group continues to come up against large costs although they face a more uncertain financial future.
For example, they typically spend a greater proportion of their budget on housing, and bills, which remains unchanged. This is likely to have been a major influence on demand for mortgage payment holidays.
Saving and spending patterns
There have also been regional differences across the country as household saving and spending patterns change. People living in London are the most likely to feel the inability to save is their biggest current concern (30% as opposed to a UK average of 26%). Almost half of all Londoners lack confidence in their own financial situation at the moment (48% as opposed to a UK average of 38%).
When asked whether they have more or less money to spare at the end of the month than before lockdown, adults living in Plymouth were most likely to be ‘lockdown savers’ while those in Brighton were most likely to report ‘lockdown losses’.
Navigating unforeseen circumstances
Many factors will determine how different parts of the UK are faring financially, including how much of the local economy is based on tourism, retail and leisure and how much it relies on public transport. Many households continue to navigate through unforeseen circumstances. Now is the time to keep saving and spending habits under careful and regular review. It is good practice to weigh up what we are spending each month, and how much more or less we are saving.
If you feel as if you have more cash to spare at the end of the month during this time, it’s important to consider a good home for it. Maintaining or even increasing pension contributions could be an attractive longer-term option for savers who can afford to do so, so that money you would otherwise have paid in tax on your earnings goes straight into your pension pot via tax relief. Providing you can access other funds at short notice if you need them, then small extra savings today could make a big difference tomorrow.
Contact Us
If you would like to explore your retirement planning in more detail then please do not hesitate to contact our Wealth Manager, Lesley Irvine-Rae. Or if you would like to find out more you can also contact us via our contact form to arrange a meeting with one of our advisors.
Source data:
[1] Research of 2,020 UK adults conducted on behalf of Aviva by Censuswide, 7–11 May 2020. All figures featured in this release refers to this dataset, unless otherwise stated
[2] The 35% saving, coupled with the 6% of additional expenditure, creates a potential 29% overall saving in households’ typical expenditure each week
[3] www.ifs.org.uk/publications/14791
