Around 1.3 million families across Britain had no savings before the biggest cost of living crisis in a generation, a think tank has said.
Without a reserve of savings to rely on, some will pin their hopes on friends or family to bail them out if they have an unexpected bill, while others think they simply won’t be able to cope, according to a study by the Resolution Foundation, which is expected to be fully released later this week.
The Foundation’s third annual Wealth Audit in Britain, in partnership with the abrn Financial Fairness Trust, looked at how a lack of wealth and high debts can have a major impact on families’ ability to cope with the current cost of living crisis.
In the run up to the coronavirus pandemic (2018 to 2020), almost half of families across Britain had savings worth less than a month’s income, while around 4% – 1 .3 million families in total – had no savings at all, the Foundation said. .
While low levels of savings are quite common in society, the report found that the tenth of the poorest families were four times more likely to report having no savings than the tenth of the richest households, 8% versus 2%.
This savings divide will only have been reinforced during the pandemic, according to the Foundation, as the wealthiest fifth of families was about four times more likely to say they had been able to increase their savings during the shutdowns than the fifth richest. the poorest (47% against 12%).
This lack of savings is critically important to families’ ability to cope with growing cost pressures or unforeseen expenses, such as today’s rising energy bills, the Foundation explained.
More than a quarter (28%) of families without savings said they would simply not be able to meet an unexpected expense, while nearly a third (32%) said they would have to turn to their friends and family should they face an unexpected expense. , compared to only 3% of those who have sufficient savings.
The Foundation pointed out that as the impacts of the rising cost of living are widespread and many households face higher bills this winter, being able to turn to others for financial help is a coping mechanism. which is less likely to be available than in more “normal hours”.
Those in arrears with bills or loans are also more than twice as likely to report high levels of anxiety as those without arrears, at 15% versus 8%, the think tank said. .
Problematic debt is a major challenge for low-income families in particular, with arrears on bills accounting for around 12% of their total monthly income, he added.
The Foundation focuses on improving the standard of living of low to middle income people.
The government previously unveiled a package of cost-of-living support measures, including a one-time payment of £650 to more than eight million low-income households across Universal Credit, tax credits, pension credit and inherited benefits, with a separate one-time payment of £300 to pensioner households and £150 to people receiving disability benefits.
Households will get a £400 cut on their energy bills from October.
The Foundation used the Office for National Statistics (ONS) Wealth and Assets Survey for its research.
Molly Broome, economist at the Resolution Foundation, said: “The huge wealth gaps in Britain mean that around 1.3 million families – especially those on low incomes – have entered the pandemic with no savings.
“With many of these families unable to save during the lockdowns, they are now approaching the biggest cost of living crisis in a generation without a financial buffer.
“Families without savings rely heavily on friends and family to meet unexpected expenses. However, there is no guarantee that they will be able to provide support as rising energy bills affect nearly every household in the harsh winter ahead.
“As a result, anxiety levels among families without a savings safety net are much higher than those with savings to fall back on.
“We need to break this cycle of low growth and low savings that leaves so many families brutally exposed to economic shocks.”
A government spokesperson said: ‘We understand people are struggling with rising prices, which is why we have acted to protect Britain’s eight million most vulnerable families with at least £1,200 of direct payments this year with additional support for retirees and those applying for disability benefits. .
“Through our £37billion support package, we are also saving the typical employee over £330 a year through this month’s National Insurance cut, allowing people benefiting from Universal Credit to keep £1,000 more of what they earn and cutting fuel tax by 5p – the biggest ever cut in fuel tax rates, allowing a family typical to save £100.
– The Resolution Foundation’s Wealth Audit 2022 report – in partnership with the abrdn Financial Fairness Trust – will be released on Wednesday July 20.