Household finances in worst state since pandemic

New research by Lowell and Opinium has found that household finances are now in a worst state since pandemic.

The research shows after years of high inflation, traditionally affluent areas populated by middle-income families have seen the biggest erosion of their financial security.  

The data shows that six in ten households lack sufficient savings and more than a third have less than £1,000 in emergency savings – the highest figure recorded.

One in ten households are using alternative financial products like payday loans and buy-now-pay-later schemes with 74% experiencing no improvement in their personal financial situation in the last 12 months.

Middle-class families are increasingly relying on credit, with above-average income constituencies seeing credit use rise 0.6% to 52.4%. Nearly two in five (38%) with a household income over £60,000 have insufficient emergency savings, with almost one in twenty having no savings at all.

Over a third (36.9%) of constituencies that experienced a decline in financial health were already highly vulnerable, suggesting existing vulnerabilities are intensifying – e.g., Luton North, Clacton, Hemel Hempstead and South West Hertfordshire.

Driven primarily by rising arrears (+2.7%), growing number of benefits claimants (+1.1%) and erosion of emergency savings. Many of these constituencies have long faced economic hardship, including high levels of deprivation and below average household incomes. 

Many areas seeing the sharpest rise in benefits claimants are already struggling with high financial vulnerability – e.g., Birmingham (+5.5% at 26.2% of population) and Bradford (+4.1% at 19.7% of population).

John Pears, UK CEO of Lowell, said “It’s been five years since the first stay-at-home order was issued but, as a country, we’ve never recovered financially. Vulnerability is approaching pandemic peaks again and, given the broader economic environment, this is only likely to get worse.

“Nearly all our indicators are in the red. Arrears are up. Savings are being eroded. Reliance on social benefits is increasing. These are all issues that have been bubbling away under the surface and are now coming to a head – and it’s not just the poorest who are struggling. Families in some of the most affluent neighbourhoods in the UK have seen their safety net fall away and are now exposed to income shocks. Layer on top of this rising bills across the board, and we have a population teetering on the edge.

“It’s important, now more than ever, to tackle the root causes of problem debt to prevent more people and families from going over the cliff edge. This must be a joint effort between our industry – on the frontline of debt – and policymakers.”