One in three people overspent even before prices rocketed

New ONS data has indicated that one in three people (35%) were spending more than we made, even before the pandemic, so the cost-of-living squeeze is set to cause enormous problems.

More than half (57%) of single people of working age overspent before the pandemic: a higher percentage than any other household type with 43% of single parent households who overspent only having money to sustain it for one month on average.

A retired person living alone could sustain an overspend for an average of three years, compared with nearly seven years for a retired couple. One in 14 were living in poverty. This rose to almost one in three among single parents.

The research also found that 42% of British households (11 million in total) are in financial wealth poverty with  35% of households are spending more than they have in disposable income.

Financial buffers are lowest in the North East, where average total wealth of £168,500 is about a third of the level of £503,400 in the South East with people living alone, single parent families, and households in the North East are most vulnerable to financial shocks

Commenting on the figures Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown said “The cost-of-living crisis is set to push millions of people over the edge. One in three were already spending more than they made, even before prices started escalating alarmingly, and among single people of working age, this rocketed to more than half. Those with lockdown savings are bridging the gap for now, but higher prices will eventually wallop us all.”

“We all need to consider how resilient our finances are, and take steps to cut our costs so we can withstand the eye-watering price increases that are on the way.

“There’s a real risk for those on lower incomes. This reflects findings from HL’s Savings and Resilience Barometer, produced with Oxford Economics. It found that the lower our earnings are, the less likely we are to have enough cash left at the end of the month to be resilient. Those on the lowest incomes were half as likely to have enough breathing space to handle rising prices as those on average incomes.”

“To make matters worse, lower earners alsotend to spend a much larger percentage of their money on essentials, so they will be disproportionally affected by runaway energy bills and rising food prices. They’re also more likely to have been furloughed, lost income, or continued travelling to work during lockdowns, so they’re less likely to have lockdown savings to fall back on. They’re entering this crisis with far lower levels of financial resilience than those on higher incomes.”

“The ONS found that single people of all ages tended to overspend more than couples, and single parents were particularly likely to have trouble making ends meet. This reflects findings from the HL Savings and Resilience Barometer, which found that only one in five single parents (19%) have enough money left over at the end of the month to be resilient – compared to more than half overall (56%).”

“This is a major reason why they struggle to put money aside for emergencies: only 41% of single parents have an emergency savings safety net of at least 3 months of essential expenses – compared to 73% overall.”

“The ONS data doesn’t break the results down by age, but the HL Savings and Resilience Barometer shows that Generation Z are far more likely to be running on empty. They already have far less money left at the end of the month than anyone else. Their age means they’re more likely to have the characteristics that make them most vulnerable, because they have lower incomes, fewer of them are in couples, and there’s a good chance they’re renting.”

“However, while those on the lowest incomes face the most enormous challenges in making ends meet, even those on higher incomes face real risks. Rises in the price of everything from energy to petrol and travel to home repairs mean that if they don’t cut their costs, they could eat through their lockdown savings. And a few months down the line they’ll be faced with the same impossible costs, and nothing to fall back on.”

Laith Khalaf, Head of Investment Analysis, AJ Bell said “These latest figures from the ONS are deeply concerning. They show that many people in the UK don’t have enough income to cover their expenditure and lack the financial resources to deal with any emergencies. They also reveal the households who are most at risk from the rising cost of living, because they are spending more than their income and have little in the way of savings, including those who live alone, single parent families, and households in the North East. The data was collected before the pandemic and the inflationary pressures that are now hitting households, so the wealth inequalities on show have likely only been exacerbated.”

“11 million households are in wealth poverty, which means that if they lost all their income, they don’t have enough liquid assets to sustain a basic level of expenditure for three months. This is less of an issue when the labour market is as strong as it is right now, but if the Ukraine crisis and the consequent rise in energy costs prompts a global recession, unemployment could rise, and many people would be cut adrift without a financial lifeboat. Seeing as over a third of households are spending more than they’re earning, a large proportion of people simply don’t have the resources to build up a rainy day fund, even if they wanted to.”

“There are no easy answers to the financial frailty of such a large number of UK households, particularly in the current environment when the rising cost of basic items like food and energy are going to heap pressure on household budgets, not to mention the tax rises that are arriving in April. Those who can afford to put aside some money each month should do so, in order to build up a financial buffer against future shocks.”