1.3 million families – including one-in-twelve poor families – have no savings to cope with rising cost pressures or unexpected expenses

1.3 million families across Britain had no savings prior to the pandemic – including one-in-twelve of the poorest tenth of households – with a third admitting they would have to rely on friends and families for help in the case of an unexpected expense, according to new Resolution Foundation research to be published later this week.

The Foundation’s third annual wealth audit of Britain – in partnership with the abrdn Financial Fairness Trust – examines the scale of Britain’s wealth boom over recent decades, how it has reshaped society, and how families’ lack of wealth (such as low savings) or negative wealth (excessive debts) can have a major impact on how they are able to cope with the current cost-of-living crisis.

In the period running up to the pandemic (2018-20), almost half of families across Britain had savings worth less than a month’s income, while around four per cent per cent of families – 1.3 million in total – had no savings at all.

While low levels of savings are fairly common across society, the report shows that the poorest tenth of families were four times as likely to report having no savings as the richest tenth of households (8 per cent vs 2 per cent).

This savings divide will only have been reinforced during the pandemic, says the Foundation, as the richest fifth of families were four times as likely to say they were able to increase their savings during lockdowns as the poorest fifth of families (47 per cent of the richest families, compared to just 12 per cent for poorer families).

This lack of savings matters hugely for how families are able to cope with growing cost pressures or unexpected expenses, such as the current surge in energy bills.

The report finds that over a quarter (28 per cent) of families with no savings report that they simply would be unable to cope with an unexpected expense, while almost a third (32 per cent) say they would need to turn to friends and family if faced with an unexpected expense (compared to just 3 per cent of those with sufficient savings).

The Foundation notes this coping mechanism is less likely to be available than normal, with all households facing rising costs at the same time this winter, and warns that a large rise in energy bill arears this winter will have serious impact on families’ wellbeing as well as finances.

Those with bill (or loan) arrears are more than twice as likely to report high levels of anxiety than those without arrears (15 vs. 8 per cent).

The wealth audit also shows how families have built up considerable debts in the years running up to the pandemic. It notes that rising debt was common across all income groups and that the biggest source was student loans off the back of rising fees and more people going to university.

More problematic debt however is a major challenge for low-income families in particular. The report shows that bill arrears account for around 12 per cent of total monthly income among low-income families, while the richest tenth of families have no arrears.

Molly Broome, Economist at the Resolution Foundation, said:

“Britain’s huge wealth divides mean that around 1.3 million families – particularly those on low-incomes – entered the pandemic without any savings. With many of those families unable to save during lockdowns, they are now approaching the biggest cost-of-living crisis in a generation with no financial buffer.

“Families with no savings are hugely reliant on friends and family to cope with unexpected expenses. However, there’s no guarantee that they’ll be in a position to provide support, as surging energy bills affect almost all households during the difficult winter to come. As a result, anxiety levels among families with no savings safety net are far higher than those with savings to fall back on.

“We need to break this cycle of low growth and weak savings that leaves so many families brutally exposed to economic shocks.”

Mubin Haq, Chief Executive at abrdn Financial Fairness Trust said:

“The pandemic led to a further polarisation of wealth. Those with resources were able to save more whilst those with less were more likely to use the limited savings they had.

“As the cost of living crisis bites, it’s those families with no or little savings who are struggling to cope – more than four-in-ten at the bottom would be unable to cope for more than one week if they lost their main source of income. These families are now cutting back on essentials, which is hurting them and causing misery for millions, as well as damaging the wider economy.”