CCR Magazine

Two new reports by the low earners think tank, The Resolution Foundation, will today show that low earners have struggled more in the recession because of their exposed and overlooked position compared to both benefit dependent groups and higher earners. This leaves them more susceptible to falling into the benefit-dependent group in the spending squeeze to come.

The reports show that low earners have:

   1.   Been more likely to have experienced a drop in income than other groups - this was most pronounced amongst the 25-34 age group where 66% reported a fall in income compared to 50% in the benefit dependent group and 33% amongst the higher earning group

   2.   seen a reduction in hours - the proportion of low earners citing a loss of income due to reduced working hours as a factor in difficulty meeting payments doubled from 2008 (rose from 3% in 2008 to 7% in 2009). Underemployment is as much of a problem as unemployment for low earners

   3.   experienced higher levels of personal inflation than higher earners - 41% of their income is spent on essential items (food, fuel, which have been the biggest drivers if price increases in recent years) versus only 27% among higher earners

The Resolution Foundation’s reports the Low earners audit update and Behind the Balance Sheet published today highlight the vulnerable position low earners find themselves in but also the often skilful way they manage their money.  Some low income households bridge the shortfall in their incomes by shopping around on the high street to always find the best deal, growing their own vegetables, bargaining at car boot sales, selling things on e-bay and through social networks of childcare arrangements etc.
 
The Resolution Foundation works to improve outcomes for low earners who are largely independent of state support yet often struggle to remain economically independent on relatively low incomes. There are 9.4 million low earners of working age - living on an average household wage of £15,800. Low earners are not the poorest in society and are not in crisis - although many of them live close to the cliff edge, spending all their monthly income, leaving no room for savings or safety nets. Many of them were already in a fragile economic position prior to the recession and our findings point to their vulnerability now and in a future spending squeeze:

·       1.7 million low earners were in acute financial health prior to the recession

·       Low earners have little or no safety net - over half of low earners have less than a month’s salary in savings

·       Low earners are more glum than any other group about their personal economic fortunes, with their expectations falling almost 20 per cent since 2001

Behind the balance sheet offers a fuller and more accurate understanding of how low income households juggle their limited incomes and expenditure, and what factors drive their financial decisions. We found:

·       Financial health is a complex juggling act for low earners

·       small changes in income and circumstances can be deeply destabilising

·       there is no such thing as a purely economic decision – low earners rely on a whole range of hidden assets or have hidden liabilities

Sophia Parker, Acting Director of the Resolution Foundation said:

“Too often it is assumed low income households find themselves struggling because of poor money management, bad character or over consumption. However, our research shows that low income households may in fact be better money managers than other income groups more adept at making less go further. We need the Government, financial services and third sector to recognise how hard many low income families work to stay financially independent and do more to prevent them from being squeezed in the mixed economy.”
 
“What is more, low earners make up nearly a third of the electorate – our polling shows that they are however less likely to vote than the general population and more likely to vote for a minority party. Politicians need to be talking to their needs if they want to secure their votes at the general election.”
 
Matthew Whittaker, Senior Economist at the Resolution Foundation said:

“Low earners can and must be enabled to help themselves live in a more economically sustainable position.  The low earner group is fluid and diverse and anyone is susceptible to falling into it. We know from our statistical research that some low earners are in crisis, but the vast majority just live in an exposed state. We must enable low earners to remain financially independent in the spending squeeze to come and also facilitate them to start planning for the future. Too many low earners live day to day without adequate pension provision or safety nets for a rainy day.”
 
The Foundation concludes that there are three key areas that need further work and attention to help low earners remain financially independent:

   1.   Building resilience - renewed focus on low income households to help them become more financially stable now and in the future

   2.    Building a system that works - better alignment, tax, credits and benefits – need to reflect the reality of people’s lives in terms of responsiveness and complexity

   3.  Building financial capability – contrary to expectation low earners are often very good money managers but need help with better long-term financial planning through the roll out of a national money guidance service imminently

Some further stats:

·       £1.9bn unsecured low earner household debt
·       32% low earners have secured debt (average £89,000), 53% unsecured (average £5,200)
·       38% of low earners struggle to keep up with bills and credit commitments (28% from time to time, 10% constantly)
·       40% LEs not saving for a pension
·       the number of low earner households saying that they have difficulty keeping up with bills because of a fall in income associated with a reduction in working hours has more than doubled, from 220,000 in 2008 (3 per cent of the total) to 470,000 (7 per cent of the total).

(Source - The Resolution Foundation News Release)