Latest ONS statistics highlighting the social impacts of Coronavirus have indicated that one in seven people borrow to pay bills.
The research also showed that 81% of people said their cost of living has risen over the past month. When asked how this was affecting them, 22% of people said they were spending their savings. Younger people, aged 16-29, were most likely to say this (27%).
Whilst 14% said they were borrowing more because of rising costs. This was more common among younger people, although 21% of those aged 16-49 gave this answer.
Less than six in ten said they could pay an unexpected but necessary bill of £850.
Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said “The desperate squeeze on our finances has wrung us dry, and millions have nothing left to give. Over a fifth of people are spending their savings and more than one in seven are borrowing to make ends meet. And while this may feel like a handy short-term solution, in the long-run it’s only going to make life even harder.”
“Over a fifth of people are being forced to spend their savings – rising to more than one in four young people. On the one hand, at least lockdown savings mean more of us have this cash to fall back on. However, this isn’t a long-term solution. If you eat away at your emergency savings safety net instead of significantly cutting your costs, then months down the line you’ll be left with exactly the same problem in making ends meet, but having destroyed your emergency savings so you’re far less financially resilient.”
“Even more worrying is that one in seven people are turning to borrowing. Among those aged 16-49 this rises to more than one in five. It’s never a good idea to borrow to pay the bills. It feels like an easy solution, but you’re actually adding to the problem, because next month you’ll still have the same impossible bills, but you’ll have debts and interest to cover too.”
“This is the first time income has come under pressure, it makes far more sense to cut back on spending, so it’s good news that this is more common. More than half of us have cut back on non-essential spending so we can stay within our budgets, and 37% are shopping around more – which is by far the least painful way to cut costs. It’s also incredibly positive that 37% are working hard to cut our energy use – which will stand us in great stead when the price cap rises in April.”
“However, those who have already done all the easy things are left with far more difficult decisions. It’s a particularly worrying sign that 30% of people are having to react by spending less on food and essentials. For those whose finances were on a knife edge even before the cost-of-living crisis kicked in, they have fewer few options left.
“Energy bills have risen dramatically, and this week millions of people saw just how much their direct debits would rise after the 54% price cap hike in April. So it’s hardly surprising that 80% of those who say the cost of living is rising, blame energy bills for it. Fuel is also going through the roof. Petrol has risen above £1.50, and last week some forecourts were charging as much as £1.70, so 76% of people said more expensive fuel was hurting them”
“Two interest rate rises are starting to take their toll too, with 13% of people saying their rent or mortgage is on the rise. This is such a significant chunk of people’s budgets that even a small rise can have a profound impact.”
“Rising rents are particularly dangerous, because the HL Savings and Resilience Barometer, produced with Oxford Economics in January, revealed that tenants are already far less resilient than their homeowning counterparts. They’re less likely to have money left at the end of the month, so a rent hike will hit them hard. They’re also less likely to have emergency savings to fall back on, so they can’t dip into savings to fund a move somewhere less expensive.”