One in three don’t have a rainy day fund

More than one in three people (36%) do not have a rainy day fund, according to new research from Compare the Market. This includes more than half (52%) of Gen Z, or people aged between 16 to 28. A rainy day fund is money that you have saved to cover unexpected financial emergencies, such as losing your job, a family illness, or your car breaking down.

Compare the Market’s research revealed a variety of reasons why people may choose not to have a rainy day fund. Nearly half (47%) say that it is because they cannot afford to save money into a rainy day fund while one in five (20%) have had to spend their entire rainy day fund to cover rising living costs.

Over one in ten (12%) previously had a rainy day fund but spent it during an emergency, while others (10%) are prioritising saving for a different goal like retirement or buying a home. Around one in ten (12%) simply do not view a rainy day fund as being necessary, rising to almost one in four (24%) for Gen Z.

Recent economic uncertainty and rising household bills have also had an impact on saving habits related to rainy day funds. Over one in four (27%) say that these factors have caused them to withdraw money from their rainy day fund to spend on essential costs, rising to one in three for Gen Z (33%). Yet, for others, it has caused them to increase the amount they have saved (26%), or change the savings account they use for their rainy day fund (19%), jumping to almost four in ten (38%) and over one in four (26%) respectively in the case of Gen Z.

On average, people with rainy day funds say that they have enough saved to cover them for more than seven months of expenses. This is higher than the typical recommendation from experts of having   enough saved to cover three months of essential outgoings. Compare the Market’s research found that people with rainy day funds, typically have £18,296 saved and top up their fund once every two months on average, adding an average of £479 each time.

Looking at younger generations, Compare the Market’s research found that Gen Z have just over half the average amount saved in their rainy day fund, at £9,174. This group nevertheless save slightly more than average each time they add to their rainy day fund, at £496, and estimate that they have enough saved to cover nearly five months of essential outgoings, less than the overall average but still more than is recommended by experts.

Nevertheless, among those who do have a rainy day fund, there is still more than one in three (36%) who believe they currently do not have enough saved to pay for an unforeseen emergency. Although more than one in five (22%) are not making any changes to their personal finances to increase the amount they have saved in their rainy day fund, most are taking action.

Four in ten (40%) are reducing the amount they spend on leisure activities, with others shopping around online for the most affordable deals (35%), reducing the amount they spend on holidays (31%), using discounts (31%), and reducing spending on subscriptions (25%). More concerningly, a significant proportion (30%) are also reducing the amount they spend on essentials like food and bills.

People choose to save for a rainy day for a variety of reasons. Over half (52%) have one in case they need to pay for emergency home repairs, while more than two in five (43%) have one in case they need to pay for emergency car repairs. A similar proportion (42%) have a rainy day fund in case they need to pay for a personal or family medical emergency and one in four in case they lose their job (26%).

Those with rainy day funds also use different financial products to store their savings. The largest proportion rely on an easy access savings account (38%), but others use a regular savings account (35%), a cash ISA (23%), or fixed rate savings account (15%). A smaller proportion use a fixed rate ISA (10%) or a stocks and shares ISA (10%).

Charlie Evans, Money Expert at Compare the Market, said “Unforeseen emergencies like job loss or family illness can impact anyone with little warning. With the higher cost of living, it’s more important than ever to try and set aside a part of your earnings to help cushion the impact of potential financial shocks.

“It’s encouraging that many Brits have rainy day funds, but a significant number still lack any emergency savings or feel unprepared for financial shocks.”