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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have been turned upside down, and household budgets that guided our incomings and outgoings before the pandemic are no longer valid.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.

Estimates that increased spending on items such tea, coffee, chocolate and energy consumption and pastimes like TV subscriptions (Netflix, Sky) adds around 6% to the average households’ 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 households’ average weekly spending by 35%. Overall, this creates a net saving of 29%[3].

The data highlights that female savers look to have been disproportionately affected during the lockdown, as workers in sectors like hospitality and retail, are more likely to be younger females[4]. Younger people across the board also face a significant challenge.

Uncertain financial future

Those under 34 typically struggle to save under normal circumstances, but the current conditions have exacerbated this, as they continue to come up against large costs, but face a more uncertain financial future.

For example, this age group typically spends 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 has 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 concern currently (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 savings 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.

Green shoots of financial confidence

A wide range of measures has been announced by the Government to help support people and businesses financially through the coronavirus pandemic. As a result, we’re starting to see green shoots of financial confidence from UK households. If you would like to review any area of your financial plans, contact S4 Financial on 01276 34932 or email hello@s4financial.co.uk to discuss this further.

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] Aviva’s analysis of ONS data, which reports that the average UK household spends £585.60 per week – www.ons.gov.uk/peoplepopulationandcommunity/personalandhou-seholdfinances/expenditure/bulletins/familyspendingintheuk/april2-018tomarch2019

[3] The 35% saving, coupled with the 6% of additional expenditure, creates a potential 29% overall saving in households’ typical expenditure each week

[4] www.ifs.org.uk/publications/14791

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND YOUR ENTITLEMENT TO CERTAIN MEANS TESTED BENEFITS AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

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