Financial resilience levels have decreased during the last six months, going from 63.7 out of 100 to 60.5, as middle incomes begin to feel the pinch, according to Hargreaves Lansdown.
The third edition of the Hargreaves Lansdown Savings & Resilience Barometer, which was released in collaboration with Oxford Economics, revealed that almost nine in ten of the lowest-income households suffer poor or very poor financial resilience. But, people with middle incomes are also beginning to feel the pinch, and that about a third have poor or very poor resilience.
Resilience levels have decreased during the last six months, going from 63.7 out of 100 to 60.5, according to the survey results. This compares to 41 per cent of couples without children, and just 13 per cent of single-person families without children have extremely strong financial resilience.
Additionally, homeowners will suffer a 1.4-point decline in their retirement planning scores due to dropping home values, compared to a 0.2-point decline for renters.
Hargreaves Lansdown senior personal finance analyst Sarah Coles says: “The worst of the squeeze may be over, but the pain of rising prices will endure throughout 2023, and for lower earners, young people and singletons, it’s going to be agonising. Millions of people are already running on empty, and the Barometer shows there are still miles to go.
“The past six months have taken a toll on our resilience across the board – from savings to debt, with the overall average Barometer score out of 100 dropping from 63.7 to 60.5. This is still higher than before the pandemic (58.8), but we’ve lost three-fifths of the boost we got from things like lockdown savings.
“The good news is that we may be past the peak. The number of people struggling with rising prices hit almost two in five at the end of 2022, and this is expected to gradually fall back to just under a quarter at the end of this year.
“However, we’ll still face horrible pressures through the rest of the year, because wages aren’t likely to make up the ground they lost in 2022. Even more worryingly, the impact of all of this builds over time, so that runaway inflation hasn’t just damaged our ability to make ends meet today, it has also affected the levels of debt we’re carrying and the resilience we’re building for the future. For some groups of people, the future is particularly concerning.
“Those on lower incomes are hit hardest because they spend a disproportionate amount of their income on the essentials – which have risen in price by 12.1 per cent – more than double the inflation rate of non-essentials. Overall, just under a third (30 per cent ) of households will be hit by rising prices this year – and either have to cut back, spend savings or borrow more. Among lower earners, this rises to almost 80 per cent.
“To make matters worse, they’re far less likely to have any costs left to cut, and they were less likely to be sitting on any extra savings built up during the pandemic. When we got to the end of 2022, households with less income than average were actually in a worse savings position than before the pandemic hit. For those with no savings left, it raises the risk that this year will see more people on lower incomes taking on unaffordable levels of debt.
“And while lower earners bear the brunt, another notable trend is that those on middle incomes are starting to feel the squeeze too, and almost a third have poor or very poor resilience.
“There are much lower resilience scores across the board for single people – both with and without children – who are having to make a single income stretch further. Only 13 per cent of single-person households without children have very good financial resilience, compared to 41 per cent of couples with no children. Some of the detail in the barometer also shows that people who make financial decisions with their partner tend to be more resilient than those who make decisions alone, so having a sounding board seems to help people find solutions during tougher times.”