The pandemic has created financial uncertainty across the UK. Now, a new survey has revealed that millions of people could face disruption in the event of a financial shock simply because they don’t have enough emergency savings.
The study, conducted by Focaldata, found that more than half (52%) of UK adults do not have enough savings to cover 3 to 6 months of essential spending.
This backs up research from the Yorkshire Building Society (YBS) in June 2021, which found that 19% of UK adults have less than £100 in savings.
Hargreaves Lansdown have calculated the average three-monthly expenditure of an adult living alone to be £2,999, or £5,567 for couples living together. These figures will roughly double for six-monthly periods.
This seems like a long period to go without income, but the uncertainty of the Covid-19 pandemic has proven that you must always expect the unexpected.
Sarah Coles, a personal finance analyst from Hargreaves Lansdown, admitted the data made her nervous for the millions of people who lack the emergency savings they might need to rely on, while also directing her concern towards the elderly and higher earners.
“Even retirees and higher earners have holes in their savings safety net. What’s even more alarming is how many people with a shortfall have no idea of the risk they’re taking, and that they’re not as resilient as they think.”
Covid-19 has seen the situation worsen
The survey also found that 40% of households had seen their financial situation worsen since the start of the year. This news comes after the YBS found that 21% of people have been unable to save in 2021, compared to just 12% in 2019.
Financial struggles are known to cause mental health struggles, which is why savings are so important.
And interestingly, a higher salary doesn’t automatically reduce financial stress. 23% of households earning more than £100,000 said they would not be able to cover their essential costs over a three-month period on savings alone.
Coles from Hargreaves Lansdown commented: “Those on higher incomes who lack savings are far more vulnerable than they think. A drop in income, even in the short term, could leave them falling short of their essential commitments, which can have far-reaching consequences for years.”
ISAs are a tax-efficient way to save
If you’re worried that you don’t have enough emergency savings, an ISA can be a tax-efficient way to create a rainy day fund.
A Cash ISA is a traditional savings account that pays tax-free interest, while a Stocks and Shares ISA can offer the opportunity for investment growth if you’re considering saving for five years or more. All returns from a Stocks and Shares ISA are free of Income and Capital Gains Tax.
Please remember that the value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.