As Covid restrictions continue to ease, there are signs of improvement for UK household finances too. At least in recent research from from insurer Scottish Widows, which show continued improvement for household finances in the second quarter of 2021, is a step in the right direction. Our feel is that there is sometimes a gap between research and an individual’s lived experience but nevertheless we felt it interesting to share.
The research said…
Savings trends improved, and there was a more positive long-term outlook, as the easing of lockdown measures helped households strengthen their balance sheets.
There was also an improvement in job security sentiment, as more workers returned to employment from furlough.
The Scottish Widows Household Finance Index measures overall perceptions of financial well-being. On a seasonally adjusted basis, the headline index rose from 42.0 in the first quarter to 44.7 in the second quarter.
While an index reading below 50 indicates a deterioration in financial well-being perceptions, this is now the weakest decline since the start of the pandemic.
On a monthly basis, the data suggests a strengthening performance within the quarter, as June’s index reading was the highest recorded since last February.
What’s making the difference?
One factor contributing to improved household sentiment in the second quarter is a reduced financial strain for households.
For the first time since the start of 2016, UK households believe their financial well-being will improve during the next year. 18 to 34-year-olds are especially optimistic about their financial outlook.
Digging into the data, fewer households are cutting back on their saving for retirement, with 16% of households reporting a decline in the amount saved. In the previous two quarters, this stood at 20%.
The data also shows that 44% of households maintained their contributions to retirement savings, compared to before the onset of the pandemic.
Looking to the future, one in seven households expect to increase their regular retirement savings in the next year, with the pandemic placing greater importance on future planning.
For broader financial resilience, 41% of respondents said they had made additional savings since last February. Moreover, higher earners reported saving even more, with 67% putting aside more money during the pandemic, compared to 18% of lower earning households.
Most households expect to hang onto some of their savings during the next year, suggesting that some of the pandemic savings will be allocated towards long-term financial goals.
The survey also revealed that the pandemic had changed our attitudes towards preparing for the worst to happen. For example, 9% of people took out a life assurance policy since the start of the pandemic, and 6% obtained cover for mortgages, medical bills, income and critical illness.
So, while some of the long term implications of Covid are still surrounded with uncertainty, the research indicates that household finances are finding a firmer footing. We hope that this is a trend that continues.