Financial resilience crisis leaves millions vulnerable to income shocks

Millions of working households could see their finances unravel far sooner than they realise, according to new analysis from Royal London, which warns that the UK’s financial resilience remains worryingly weak despite signs of recovery from the cost-of-living crisis.

The report found that the average UK adult scores just 33% on its Financial Resilience Barometer, placing the nation in the ‘Economically Exposed’ category and highlighting how many households remain ill-prepared for unexpected financial setbacks.

Perhaps most concerningly, employment is no guarantee of financial security. More than a third (35%) of employees are classed as financially fragile despite being in work, while a further 40% are considered economically exposed.

The findings highlight the need for a broader conversation about family financial resilience and the role protection products can play in helping households cope with unexpected events.

The research found that life shocks can have a profound impact on financial wellbeing. More than four in ten (42%) people who have experienced a life event in the last two years, such as bereavement, divorce or job loss fall into the financially fragile category.

For those already struggling, there is often little financial breathing space. Financially fragile households have average cash savings of just £1,136 and only £77 of discretionary income each month after essential spending.

Gregor Sked, Senior Protection Technical Manager at Royal London, said “When people think about protection, they often focus on the biggest life events, such as death or serious illness. Those conversations remain incredibly important, but modern family finances can be knocked off course by a much wider range of pressures.

“Income has always been the engine room of a family’s finances. Our Financial Resilience Report shows many households are operating with very little financial breathing space, meaning even a short interruption to earnings can have significant consequences when cash savings are low and disposable income is limited.

“That’s why income protection should be viewed as part of a broader financial resilience strategy. Families aren’t simply looking to insure against illness, they’re looking for confidence that they will be able to withstand life’s unexpected challenges.”