One in ten have no cash savings

Latest Financial Conduct Authority (FCA research has found that one in ten people lack any cash savings, raising concerns about their ability to manage emergency expenses.

The data showed that 21% have less than £1,000 to draw on in an emergency. The regulator’s research also shows that one in four people in the UK have low financial resilience, meaning that they have missed payments, are struggling to keep up with commitments, or don’t have savings to help them through difficulties.

The FCA found when consumers seek support it makes financial pressures more manageable. Of the 1.7 million people who had used a debt advice or debt management service in the previous 12 months, 61% said their debts were more manageable as a result. Lenders also have a range of options available to help people struggling with repayments.

There has also been progress on access to basic banking services such as an increase in consumers who hold current accounts and a reduction in people being denied basic bank accounts. There are also more people banking online or with a mobile app.1.2 million adults (2%) were digitally excluded, a dramatic improvement from 6.9 million (14%) in 2017.

Even those who are better off could take steps to improve their long-term financial health. 61% of people with more than £10,000 in investible assets held these in cash, rather than investments. The FCA wants to see more people holding mainstream investments to improve long-term returns.

Looking towards retirement, the FCA’s survey found that one-third (33%) of adults currently saving for a defined contribution pension have less than £10,000 saved.

In light of these findings, the regulator is urging consumers to reach out to their lender if they’re struggling with their payments and get help with pensions and investment decisions to improve their long-term financial health.

As part of its new strategy, the FCA is working to improve people’s access to help, guidance and advice so that everyone can access the support they need, at a cost they can afford, to make informed decisions for their financial future.

Sarah Pritchard, Executive Director of Consumers and Competition at the FCA said “Our data shows that finances are stretched for many – with some unable to save for a rainy day. And we know that some do not have the confidence to invest. But there are improvements – more people with current accounts and less digital exclusion. Our strategy will build on this to help people better navigate their financial lives.”

Oliver Morley, Chief Executive at the Money and Pensions Service, which provides the MoneyHelper service, said “People who experience individual financial wellbeing are less stressed about money which in turn has positive effects on their health, relationships, and work. Through MoneyHelper – our free and impartial service – we can help make your money and pension choices clearer by cutting through the complexity, explaining what you need to do and how you can do it.

“I’d encourage anyone who is worried about their money or pensions to visit www.moneyhelper.org.uk and join the millions of people who have been supported.”

Richard Lane, Chief Client Officer at StepChange Debt Charity, said “When people find themselves facing an unexpected cost or emergency, having a savings buffer can be a lifeline that prevents an escalating debt crisis. For the significant minority of people who don’t, as the FCA figures show, they are left with difficult choices of turning to unaffordable borrowing or going without essentials.

“If people are forced to rely on credit to make ends meet when their finances are thrown off course, this can often draw them deeper into financial difficulty and problem debt.

“As evidenced by the FCA’s research, free debt advice and appropriate financial support can be invaluable in helping people to manage their debt problems and take back control of their finances. So it’s particularly important that firms are proactively signposting customers to debt advice at an early stage.

“It’s vital that the Government uses the upcoming Financial Inclusion Strategy to support more people to build financial resilience. We are calling on the Government to expand the Help to Save scheme and work with employers to expand workplace savings schemes.

“We also want to see the Government invest in safe options for those who can’t afford to save to cope with unexpected costs, including a permanent national crisis support scheme, building on the Household Support Fund and a national no-interest loan scheme, and by working with the financial services industry to expand affordable, low-cost credit.”

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “Millions of people in the UK are running on empty – one in ten have no savings at all to fall back on and another one in five have less than £1,000. This may seem like a useful chunk of cash, but doesn’t go far if your car breaks down, the boiler stops functioning, or you lose work for a while. For one in four people, things have deteriorated even further, and their resilience is at rock bottom.

“When your finances are stretched, it’s incredibly difficult to build an emergency fund, but when you’re hit by the unexpected, you’ll be grateful for every penny you’ve managed to put aside. It’s a good idea to set up a direct debit to put whatever you can afford aside on payday. Even if this is a vanishingly small sum of cash, you can make a note to revisit it every few months to see whether you can afford to pay in any more. It’s particularly worth doing this after a pay rises, or during periods when you are working more hours. Over time, you’ll be surprised how even small chunks of cash can build, which will help protect you from nasty surprises.

“Even among those with more money in their pocket, there are some worrying gaps in their finances. Almost two thirds of those with more than £10,000 in investible assets hold at least three quarters of it in cash. Everyone needs some cash for emergencies, and while we’re working age, it should be enough to cover 3-6 months’ worth of essential spending. However, there are clearly an awful lot of people who could afford to invest more.”