More and more people are looting their piggy banks because of the cost-of-living crisis, new data shows.
One in three people now don’t have enough money for emergencies, according to the latest report from Hargreaves Lansdown and Oxford Economics. This is more than one in four just 18 months ago.
Although inflation has eased slightly according to new ONS figures released today, it remains at 7.9 percent and the cost of many essentials is still rising at a breakneck pace.
According to Sarah Coles, head of personal finance at stockbroker Hargreaves Lansdown, we are now seeing depositors eat up the cash buffers many have built up during the pandemic.
Many households spent less than usual during the worst of the Covid-19 pandemic, helping them save money.
Regional breakdown: In Merseyside and southern Scotland, about half of people don’t have enough savings for emergencies, Hargreaves Lansdown said
Says Coles: “Our savings have been devastated over the past 18 months as runaway price increases have flattened our financial resilience.
“We worked our way through all the money we could set aside during the lockdowns, and we also ate up the money we had set aside for major emergencies.
Lockdown savings prevent millions of people from hitting a wall financially.
“However, those who have been unable to save during the pandemic have nothing to fall back on and are at serious risk of building up impossible debts.”
The report shows the areas of the country with the highest and lowest percentages of people with sufficient emergency funds.
Emergency funds act as a financial buffer to deal with unforeseen events, such as losing a job or making costly emergency repairs at home.
Personal finance experts believe that an emergency fund should cover between three and six months of basic living expenses.
London and the Home Counties have the highest percentage of people with at least three to six months of emergency savings spending, according to the data.
In Merseyside and southern Scotland, about half of people don’t have three to six months of emergency savings in the bank.
The big gap: 28 percent of the bottom fifth of earners have enough savings compared to 92 percent of the top fifth of earners
Merseyside, in particular, has seen the proportion of people with three to six months of savings fall from 68 per cent to 51 per cent over the past 18 months.
Meanwhile, Devon, Essex and West Wales are also among the regions with the lowest savings rates.
‘The higher cost of living has hit those on the lowest incomes hardest,’ adds Coles, ‘and has wreaked havoc on savings, particularly in northern England and southern Scotland.
“In some areas, only about half of people have enough savings to protect themselves against the unexpected.
“Apart from London’s wealthy suburbs (West and North West), savings have fallen across the board over the past 18 months – both in the high savings areas and those struggling.”
However, this has clearly had a much greater impact in places where fewer people had enough savings to begin with.
The real gap is between people of different income levels, with 28 percent of the bottom fifth of earners having sufficient emergency reserves compared to 92 percent of the top fifth of earners.
But other factors also have a huge impact. Parenting is expensive, which is why single parents have so few savings – only 24 percent have savings for three to six months.
Those on lower incomes with children are hit even harder. Only 15 percent of the poorest parents have money left over for three to six months.
However, not everyone faces such a struggle.
The vast majority of higher-income earners are still on a cash cushion, along with 89 percent of those who own their homes outright, and 79 percent of couples without children.
What can savers do to build up money?
Anna Bowes, co-founder of the savings website Savings Champion, believes that the pots of money are likely to continue to evaporate in the coming months.
She says: “It is a major concern that people don’t seem to be able to save enough money for emergencies, let alone other spending needs, but unfortunately, with the ongoing cost of living crisis, this trend is likely to reverse in the foreseeable future. continue.
“And unfortunately, when people fall out of the habit, it can be difficult to resume.”
According to Bowes, under normal circumstances, people should all try to save three to six months of their normal income for emergencies so that they can cover essential costs should something unexpected happen.
Bowes recommends getting into the savings habit by setting up a regular savings account.
A regular savings account limits how much someone can put aside each month.
This helps to trickle cash into piggy banks and can help build a saving habit.
The best regular savings account, from Skipton Building Society, pays 7.5 percent.
Adds Bowes, “One of the best ways to get back into the savings habit is to open a regular savings account and deposit the amount you can afford the day after you get paid so it becomes just like a new account – but one you can afford. benefit in the future.
Regular savings accounts pay some of the highest rates available, as you are normally limited by the amount you can deposit and you may not be able to dip into the money very often, if at all over a given term.
Or find the highest paying easy access account and deposit money into it regularly, Bowes said.
The best easily accessible bill at the moment pays 4.51 percent per year, from Chip.
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