Almost nine in ten of the lowest income households suffer poor or very poor financial resilience, according to the third edition of the HL Savings & Resilience Barometer.
Those on middle incomes are starting to feel the squeeze too, and almost a third have poor or very poor resilience.
Resilience scores have dropped over the past six months, from 63.7 out of 100 to 60.5.
Brits lost three fifths of the boost they got during the pandemic from things like lockdown savings.
Only 13% of single person households without children have very good financial resilience compared to 41% of couples with no children.
While falling house prices will mean homeowners see their retirement planning scores fall 1.4 points – compared to 0.2 points for renters.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “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 has 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.
Lower earners
“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% – more than double the inflation rate of non-essentials. Overall, just under a third (30%) 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%.
“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.
The impact of property
“Those who need to remortgage this year face doing so at significantly higher interest rates, which is going to wreak havoc on both savings and debt. Their savings and debt resilience scores will drop by around 3%.
“Falling house prices will also take a toll, although the severity will depend on just how far and fast prices fall. The barometer forecasts a fall of 10.4% during the year, but also models for worse conditions, which could mean a 18% drop. It won’t just affect people’s confidence and immediate financial position, it will also damage their longer-term plans, and the scores for being on track for a moderate retirement will fall 1.4 points for homeowners – compared to 0.2 points for renters.
“The falls are particularly striking among Gen Z and Millennial homeowners, who tend to have borrowed more to buy when house prices were higher.”
