Real disposable income is still lower than before the pandemic

New research by Hargreaves Lansdown (HL) has found that real disposable income is still lower than before the pandemic, but with consumers cutting spending it has found thatoverall financial resilience has improved.

The research shows that the average household has £235 at the end of the month, over twice the pre-pandemic level of £110, and the proportion with enough emergency savings has risen from 47% to 65%.

However, single households have missed out on a massive chunk of the recovery their coupled-up counterparts have seen in the past few years – and have seen their resilience improve far less. They have just £40 left at the end of the month, up £5 from their pre-pandemic level of £35, but £345 lower than households headed by a couple (£385). The proportion with enough savings has only increased from 37% to 47%, compared to couples who saw them rise from 52% to 73%. This is despite the fact they’re spending less than their coupled-up counterparts on the nice-to-haves – and comes down to the fact they’re forced to spend more on the essentials.

Single parent households are particularly badly off. On average they have £50 left at the end of the month, and only around one in four have enough emergency savings (26%).

Lower earners, renters and those who have had to remortgage while rates have been higher are also struggling.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “UK households have knocked money management out of the park. Real disposable income is down since before the pandemic, but people have cut spending hard enough that overall financial resilience has improved. This is an impressive result. It means that, as wages grow ahead of inflation, more households have a chance to get back on track.

“But the improvements haven’t reached into everyone’s finances yet. As life gets easier for some people, it continues to feel like one impossibly difficult thing after another for others. Single people haven’t benefited from the recovery anywhere near as much as those in a couple.

“The HL Savings & Resilience Barometer shows on average people score 61 out of 100 for resilience, up 4 points from 2019, but down 2 points since the peak of resilience during the pandemic – when higher resilience was driven largely by lockdown savings.

“Additional savings are largely responsible for the improvement in resilience. On average, around two thirds (65%) of households have enough emergency savings, compared to before the pandemic when it was less than half (47%). And we can expect those savings to build, because people have more cash left at the end of the month – at £235 – over twice the pre-pandemic level of £110.

“However, not every aspect of our finances has had a boost. How prepared people are for retirement has actually worsened over this period, and the gap between the pensions we need and those we have has grown.

“At the same time, not everyone has been able to build more savings.The benefits have been felt disproportionately by higher earners. If you split earners into ten groups depending on how much they earn, those in the groups four from the bottom to eighth from the bottom have seen savings scores rise 20 points, while the lowest earners saw them rise just 1.3 points.”