Many of us will be poorly prepared financially when things go unexpectedly wrong and we won’t be able to cope with future money shocks, a new study has shown.
The majority of Britons are on top of the financial basics, but score poorly when it comes to future financial planning, a report compiled by Schroders Personal Wealth and Warwick Business School shows.
It gave scores out of 25 for various financial healthchecks and the nation scored a lowly three for protection against the unexpected, based on its polling.
On planning for the future, the people scored a slightly higher but not much better five out of 25.
We may have done fine so far with financial stresses brought on by Covid-19 but according to Schroders Personal Wealth it’s the future financial shocks that we have to worry about, especially if we’re young
Claire Walsh, head of advice strategy at SPW, said: ‘Whilst it’s encouraging to see that the majority of UK consumers are confident when it comes to getting the basics right and managing their borrowing, it’s concerning that they aren’t doing enough to protect against the unexpected and plan for the future.
‘Individuals are leaving themselves exposed to financial shocks. A lack of planning means people might think they are on track with their finances and that they don’t need to do or change anything until it’s too late.
‘Our new financial health score aims to identify where people need help, enabling us to support them in improving their financial wellbeing.’
There was better news elsewhere though.
Besides being on top of the day to day basics of running of household finances, Britons were also found to be on top of debt, being awarded an impressive 24 out of 25.
However, overall the nation scraped an unconvincing 52 out of 100.
Claire Walsh, head of advice strategy at SPW, said individuals are leaving themselves exposed to financial shocks
SPW also conducted a report which focused on financial wellbeing, managing money and the financial issues that keeps the nation awake at night.
The Money and Mind report, which surveyed 2,000 adults in the UK, found that financial wellbeing and success are not defined by high levels of wealth or material things, but are associated with enjoying the company of friends and family and being free of money worries.
This is something that the threat of another full lockdown is likely to severly dent.
The majority (77 per cent) of UK adults define financial success as having the financial freedom to do what they want without worrying.
The report found that most people feel like they are coping well with their money matters, however, stress and finances are closely linked with half (48 per cent) of UK adults feeling regularly or occasionally stressed or overwhelmed due to their financial situation.
These feelings could have long-term effects on individuals’ careers with over a quarter (27 per cent) admitting that money worries impact their performance at work.
Debt is the biggest cause of financial stress with two thirds (65 per cent) of UK adults saying that being debt free would give them peace of mind.
This is followed by being able to save (58 per cent) and making sure the family has enough money if anything happened to the financial breadwinners (43 per cent).
How the scoring system worked
SPW worked together with Lloyds Banking Group and Warwick Business School to calculate the financial health of the nation.
Lloyds’ customer data was used to identify 20 observable metrics that have been statistically linked to individuals feeling confident in their financial futures.
It takes into account four areas:
· Getting the basics right
· Managing borrowing
· Protecting against the unexpected
· Planning for the future
Each area carries a maximum score of 25 to give individuals their overall financial health score.
Surprisingly, the financial state of the nation appears to be resilient, with 71 per cent saying they haven’t needed to make financial changes to support themselves or their family members throughout the pandemic.
However, the research shows that the elderly were more financially secure. 84 per cent of over 55s are in the most stable position compared to 67 per cent of those aged 35-54 and 59 per cent of those aged 18-34.
Some signs of stress are still evident with 29 per cent of consumers saying they have missed a bill payment.
A small minority (16 per cent) admitted to being forced to dip into savings to help tide them over during any challenges that the impact of Covid has presented. Since the pandemic hit, only 1 per cent of over 55s have resisted raiding their pensions to bail them out of financial hardship.
When it comes to financial priorities, the majority of UK adults ( 60 per cent) said they have not altered them.
Here over-55s reported to be in the most stable position with more than three quarters (77 per cent) standing firm with their money priorities.
Overall, 19 per cent said they were now more focused on day to day spending and paying bills.
A further 19 per cent said financial security was a higher priority since Covid-19, but only 13 per cent are now making plans for their financial future.
David Thomas, head of business development at SPW, said: ‘The Money and Mind report tells us that even with the countless challenges brought on by the Covid-19 pandemic, overall the average UK adult believes they are in a relatively stable position when it comes to paying bills and saving money.
‘However, this doesn’t equate to good financial wellbeing, with around half of UK adults confessing that their finances bring on feelings of being stressed or overwhelmed.
‘We believe that financial wellbeing cannot be looked at in isolation. Having a good level of financial wellbeing and feeling confident about your finances underpins all the other elements of wellbeing -they go hand in hand.’
How do different regions compare?
SPW’s survey of 2,000 respondents across the UK revealed that London is the region where people let their money worries get on top of them with 55 per cent admitting they feel stressed or overwhelmed by their financial situation.
Meanwhile, 52 per cent of those who live in the West Midlands admitted to the same kind of stress. This compares with the national average of 48 per cent.
Those who live in the North East feel less on top of their day-to-day finances than any other region at 20 per cent – compared with a national average of 13 per cent.
Southampton was the city where residents felt the least in control of finances at 25 per cent.
Wales had the highest number of people – almost a quarter (23 per cent) – admitting their ways of managing money is not helping them enjoy life, compared with a national average of 12 per cent.
The North West is the region that is the most confident at managing its money well with 62 per cent admitting this, beating the national average of 58 per cent.
People in the East Midlands are the most likely to seek help from a financial adviser with 21 per cent saying they would get in touch about their money worries. The South East, North East and those in Northern Ireland were the least likely to get help from an adviser with only 12 per cent in those regions saying they would.