Higher earners have more debt as a percentage of their income

New research by HL Savings and Resilience Barometer, in partnership with Oxford Economics, has found that higher earners have more debt than any other income group and they also have more debt as a percentage of their income.

Higher earners also have a bigger proportion of their debt on variable rates than people on lower incomes. The research indicated that at the moment they’re on top of their debts, and have the best resilience scores of all for the level of arrears.

However, the data showed that they’re worried about how much debt they carry. The top 40% of earners have the lowest score when it comes to their own view of how much debt they have whilst one in ten of the top 20% of earners still don’t have enough savings to cover three months’ worth of essential outgoings.

Commenting on the research findings, Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said “Earning more doesn’t make your finances bulletproof. In fact, running a household with higher income, spending and debt, actually makes you less resilient if your circumstances change.”

“One of the major Achilies’ Heels of this group is debt. They take on far more than anyone else, as a proportion of their income. This is likely to be because they’re confident that as long as they can continue earning at this level, they have enough disposable income to meet debt repayments. At the moment, this seems to be paying off, as those on higher incomes are the least likely to be in arrears.”

“However, it means there’s an awful lot riding on their ability to continue earning at that level, which makes them extremely vulnerable to changes in circumstances. If they have sick pay, income protection and an emergency savings safety net of 3-6 months’ worth of essential expenses, this will help protect them, but the report shows that one in ten don’t have enough savings to see them through an emergency.”

“There are all sorts of reasons for the shortfall, not least because higher earners may simply not have considered what constitutes an adequate safety net. Instead of calculating exactly how much they need to cover essentials each month, there’s a strong chance they simply alighted on a sum of cash that felt sensible to hold in savings just in case. Unfortunately, as we go through another tough year, some will discover that this sum isn’t anywhere near enough to protect them, and they’re nowhere near as resilient as they think.”

“And this isn’t the only risk they’re taking, because they also hold a significant chunk of debt at variable rates – including things like credit cards and tracker mortgages. It means they’re far more exposed to rate rises, which in the current environment of rising rates means that they could well find their debt repayments rise significantly as we go through 2022.”

“This may be why they’re more nervous about their debt position than any other income group. Almost one in five (18%) are concerned about the levels of debt they’re carrying, and those on the highest incomes are the most worried about their debt levels – so they’re already worried about their resilience.”