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‘Agonising’ 2023 awaits for low earners, the young and singletons

Paloma Kubiak
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Paloma Kubiak

In a comprehensive study of household finances and resilience, these groups are likely to bear the brunt of the cost-of-living squeeze, while middle-earners are also starting to feel the pinch.

Millions of people are “running on empty” and there are “still miles to go”, according to the Hargreaves Lansdown Savings and Resilience Barometer in partnership with Oxford Economics.

It tracks savings and debt now and in the future to paint a reflective picture of Brits’ finances.

And according to the latest bi-annual report, while the worst of the squeeze may be over, “the pain of rising prices will endure throughout 2023”, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said.

The average financial resilience barometer score out of 100 has dropped from 63.7 to 60.5 which is still higher than the pandemic figure of 58.8 but comes as lockdown savings are dwindling amid the cost-of-living crisis.

While the number of people expected to struggle with rising prices is set to fall from two in five in 2022 to a quarter by the end of 2023, “horrible pressures” still face many Brits.

This is because wages aren’t likely to cover lost ground and rising inflation has impacted savings levels as well as debt.

“For some groups of people, the future is particularly concerning,” Coles said.

‘Unaffordable levels of debt’

She said that almost nine in 10 of the lowest income households suffer poor or very poor financial resilience. They’re the hardest hit because they spend a disproportionate amount of their income on essentials which have risen 12.1%. This is double the inflation rate for non-essentials.

The barometer suggests 30% of lower income households will be hit by rising prices this year which means they’ll either have to cut back, spend savings or borrow more.

But there are problems with this as these households are less likely to be sitting on savings or have any means of cutting costs on essentials.

Cols said: “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.”

While lower earners bear the brunt, another notable trend is that those on middle incomes are starting to feel the squeeze too, with almost a third having poor or very poor resilience.

Single incomes need to stretch further

The study found lower financial resilience scores for singletons, both those with and without children.

Just 13% of single person households without children have very good financial resilience, compared to 41% 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” Coles noted.

Remortgage nightmare

Elsewhere, homeowners, particularly those who will need to remortgage this year will do so at significantly higher interest rates “which is going is going to wreak havoc on both savings and debt”. Their savings and debt resilience scores will drop by around three percentage points.

Coles said: “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 an 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.”