Whatever happened to saving for a rainy day? – Birmingham Post article 25.06.2020

Coronavirus has caught out a lot of people with their finances in disarray – from the nation as a whole to the shocking numbers who have no short term savings to cope with losing their jobs.

Britain’s national debt is set to hit £2 trillion this month, according to projections from the Office for Budget Responsibility. More than 100 per cent of national income for the first time since the end of the Second World War.

Personal debt rose 11 per cent to £119 billion in the two years to March 2018, according to the most recent study by the Office for National Statistics. The breakdown included – personal loans, £35 billion; hire purchase, £25 billion; and credit cards, £22 billion.

Experts recommend emergency fund savings should at least meet three months running costs, preferably six months.

However, just under one in three of us has less than £1,500 in savings and 15 per cent have no savings at all, cites comparison site Finder.

What are the reasons for this?

Pundits point to low earnings growth and rock bottom interest rates.

But others would blame a ‘live for today’ culture, that somehow you never will have to pay later, the Government will stump up, or you simply become insolvent and start again – in 2019 total individual insolvencies increased for the fourth consecutive year to 122,181, up six per cent, the Insolvency Service reported.

But there are consequences to bankruptcy and it can be incredibly painful.

You could lose your job and your house; your bank account will usually be frozen; you can’t borrow more than £500 without revealing your bankruptcy; possessions may have to be sold.

So what are the alternatives?

Income protection insurance ensures you continue to receive a regular income, typically up to 75 per cent of your normal pay, in the event of serious illness or injury. Critical illness insurance pays out a one-off lump sum – all such policies cover cancer, heart attack and stroke.

Figures from the Association of British Insurers show that the industry paid out more than £5.7 billion in protection claims in 2019 – a year on year increase of over £470 million. That included critical illness, 17,995 claims, £1.21 billion total value paid, £67,573.28 average value of claim paid. Income protection, 16,591 claims, £669.39 million total value paid, £17,728.80 average value of claim paid.

Of course it is easy to get caught out.

Paul Sweeney, the former Glasgow North East Labour MP who lost his seat at the last election after just two years in the job, became one of the two million who have applied for universal credit since lockdown measures were implemented. He received two months’ salary as a redundancy payment. It didn’t last long.

He is taking the setback phlegmatically, saying he has long been an advocate of the state guaranteeing a basic income. Others might say that there he was advising constituents on how to claim benefits, yet had no proper planning in place himself, and arguably an MP’s salary is sufficient to allow a surplus to provide for this eventuality.

His plight is perhaps symptomatic of attitudes.

Mortgage interest rates are virtually nil and have been low for 10 years, yet too few have been taking advantage by saving the difference or paying extra off the loan.

The temptation has been to blow it on additional comforts and luxuries.

Now the coronavirus chickens have come home to roost.

Will people learn a lesson from this and become more careful with their income? Have people been saving the excess that they have not needed to spend in lockdown?

Sadly, it seems unlikely.