Wealth falls sharply in first quarter of 2022

Despite signs of recovery in 2021, consumers’ wealth has seen a sharp decline in the first quarter of 2022 as the cost-of-living crisis takes its toll, according to the latest data from LifeSearch.

The Index – compiled by modelling a range of data sources covering health, wealth, and happiness and monitoring changes over time – shows that 2021’s combined annual index score was 84.4, a slight rise on 2020’s score of 81.5, but still 15% lower than 2019’s pre-pandemic score of 99.4.

When studied in isolation, the UK’s wealth score for 2021 was 93.0 – a rise of 11% on 2020 – but fell sharply to 86.7 at the start of 2022 as the surge in the cost of living took its toll. The annual Index – conceived by LifeSearch, built by the Centre for Economics and Business Research (Cebr) and supported by ongoing consumer research – also found that a third (32%) of households feel financially worse off, rising to 40% among ethnic minority groups. This compares to just 24% of consumers who said they felt worse off 12 months earlier.

LifeSearch found that with inflation currently at 7%, a 30-year high, only 8% of all consumers don’t expect to be financially worse off this year.  Of the seven in 10 (72%) who do think they will be worse off, they estimate this to be by £252 per month (£3,020 pa) on average, rising to £271 for women and £299 among those aged 35-44. London is the regions where people expect to be hit the hardest at £321 per month (£3,859 pa) worse off.

According to the study from LifeSearch, the UK’s leading life insurance broker, 39% of consumers think the Covid pandemic has had a negative impact on their household finances, rising to 51% of people in ethnic minority groups, and higher still among Pakistani and Bangladeshi (58%) and Indian consumers (57%).

Furthermore, when asked in April 2022, three-quarters (74%) of adults said their mental health has been negatively impacted in the last two years and of these, the “rising cost of living” (28%), closely followed by “Covid restrictions” (27%), were the top causes. In comparison, just 7% of these said the conflict in Ukraine and threats from Russia had the most detrimental impact on their mental health.

The fear of bills rising is a significantly bigger concern now compared to last year, with almost half (45%) saying they are worried about the rising cost of bills; vs 24% last year. Older people (55+) are the most concerned (54%) about rising bills in 2022.  Lack of savings (17%) is also a top concern for consumers this year – rising to 24% among ethnic minorities – followed by fears of higher taxes (19%).

Debbie Kennedy, Chief Executive at LifeSearch who commissioned the study said “While there may be a sense that after two long years the worst of the pandemic is behind us, the nation’s health, wealth and happiness is still not close to being back to levels seen pre-Covid. In fact, our happiness is at a record low, mental health issues remain high and the energy crisis, inflation and conflict in Ukraine point at another chapter of uncertainty.”

“At a more granular level, our study reveals the pandemic pressures and consequences faced specifically by people in ethnic minority communities, where many have been hit harder over the last two years and the ripple effect may continue much longer. Many in those communities feel they’ve had to work harder, dig deeper and risk more to stay afloat.”

The results from the consumer research, conducted with Opinium, showed that two-thirds (66%) of all consumers have re-evaluated their finances in some way over the last 12 months:

Savings: over 14 million consumers (28%) have saved money2, averaging £276 per month (pm) and totalling more than £4 billion pm, but down from 39% (£5.8 billion in total3) in July 2021. However, saving levels in 2022 are higher among people from ethnic minority groups as 33% have saved more in the last year, averaging at £329pm.
Reviewed spending: 22% reviewed spending more closely, rising to 38% of people from ethnic minority communities.
Paid off debts: 5.3 million consumers (10%) have paid off some debts4, averaging £491 and totalling £2.6 billion pm, rising to 15% in ethnic minority groups (averaging £496pm).
New debts: 5.8 million consumers (11%) have also taken out new debts5 in the form of credit cards, loans etc, which is down from 14% in July 2021, but the amount they are paying each month has increased from £208pm to £403pm – totalling more than £2.3 billion pm. This compares to 8% among ethnic minority groups in 2022, averaging at a lower sum of £282pm.
Insurance review: almost one in ten (9%) British adults, rising to 17% of those aged 18-34, have considered taking out / taken out a protection policy such as life insurance, income protection and critical illness according to the survey.

Proportion of British adults that have saved, paid off debts etc over the last six months and average sum saved/borrowed each month: 

	All British adults in July 2021	All British adults in January 2022	Adults from ethnic minority groups in the UK in January 2022
Saved money	39% / £281	28% / £276	33% / £329
Taken out new debts	14% / £208	11% / £403	8% / £282
Paid off some unsecured debt	14% / £319	10% / £491	15% / £496
Overpaid mortgage	7% / £319	4% / £477	10% / £905
Taken mortgage payment holiday	4% / NA	2% / NA	4% / NA
Missed mortgage payments	NA / NA	2% / £425	3% / £335

Nina Skero, Chief Executive, Centre for Economics and Business Research (Cebr) who was commissioned to produce the Index for LifeSearch, commented: “The macroeconomic environment in 2022 so far has been characterised by volatility. This is particularly the case from the perspective of consumers, with the mounting inflation rate putting significant pressure on household budgets. As such, it is of little surprise to see households’ perceptions of their income and wealth weaken.“Cebr expects the inflation rate to accelerate further over the coming months, driven by energy prices, transport costs, and other consumer essentials. This will put further downward pressure on real spending power, meaning the outlook for household finances remains unfavourable.”

The LifeSearch Index reveals that Britons’ happiness has been hit the hardest in the last 12+ months. In 2021 UK happiness fell to its lowest point in the last decade and dipped further again in the first quarter (Q1) of 2022, as the conflict in Ukraine and the rising cost of living took their toll on our emotional state of mind.  The LifeSearch consumer insights found that a quarter (24%) of all consumers feel less happy than last year, rising to 31% of those living alone and 28% of ethnic minorities, higher still (37%) among those of Indian heritage.  However, 28% of consumers do feel happier than last year and 2021 is a marked improvement on a year ago, where 46% of consumers said they felt less happy.