The Money Stats – October 2020 – Positive Signs Tempered By Lower Financial Resilience

Positive news of higher savings levels and lower credit card balances over recent months is tempered by evidence of wider losses of income and lowering of overall financial resilience, as the pandemic continues to demonstrate its surprising and conflicting effects on the state of UK household finances, according to the October 2020 Money Statistics, produced by The Money Charity.

This year’s highly unusual events continue to play out in equally unusual statistics. From April to June 2020, the UK household savings rate rose to an exceptionally high 28.1% of post-tax income, including benefits. At the same time, outstanding credit card balances fell by 13.8% (9.98 billion) in the year to August 2020. Viewed together, these two numbers would suggest that lower levels of spending and constant incomes have improved the finances of many households during the first phase of the pandemic.

At the same time however, the FCA reports that almost one-third of adults have experienced income loss during the pandemic, with households seeing income fall by a quarter on average. An additional two million people have become financially precarious, taking the total classified as lacking financial resilience to 12 million. Contrasted to the above, a different picture quickly emerges showing the gap between those whose finances may have benefitted from the pandemic and lockdown, against those whose situation has been severely affected.

Additionally, many millions have accepted deferrals on their mortgage or other loan products, which means that there is a risk of large-scale household insolvency if people are required to resume payments before the economy and employment have sufficiently recovered.

Regulators, the Government and the finance sector will need to work closely together in the coming months to make sure the necessary level of support is provided for struggling households as the economic hit of 2020 could turn into a prolonged recession without the right action. Looking at the longer term, the UK’s burning question is to look at its household financial resilience levels and set a course on how best these can be improved.

Michelle Highman, Chief Executive of The Money Charity says: “Increased savings rates and reduced levels of reliance on credit are always to be welcomed and suggest how many financial mindsets have managed to shift in the current unusual circumstances. However, the heavy losses of income and resilience for so many point towards a stark contrast between the haves and have nots. Positive signs cannot truly be celebrated when they do not point to the UK finding its way onto a more sure-footing when it comes to financial resilience, our collective ability to deal with the unusual and unexpected.

“Clearly the pandemic is far from over, but the moment for strong and decisive planning and action is now. It is essential that this time is used as a reset button to fully integrate strong, practical and engaging financial education into our schools, as well as to fix the broken systems and unfair practices which hinder people from achieving financial wellbeing in their lives.”

Other striking numbers from the October Money Statistics:

  • Borrowers paid £124 million a day in interest in August 2020. (P5.)
  • The UK economy shrank by -9.2% from February to August 2020 (P19.)
  • There were 227,000 redundancies in the three months to August 2020 (P20.)