Business

What savings will shelter you in times of trouble?

Lockdown and its consequences for our savings has been the equivalent of the (financial) tide going out

THERE are many insights into our health that have emerged over the past year.

We've had a clear focus on our physical health, on keeping safe, on keeping other people safe, on keeping our distance to limit the spread of the virus.

We've been locked indoors much more than usual, and forced to spend more time cooped up at home. Consequently there has been more focus on our mental health as well.

But I'm not talking about our physical or mental health today, I'm talking about some new insights into our financial health, and in particular our reserves of savings to shelter us when precisely this kind of difficulty comes along.

I'm reminded of a quote by the American investor Warren Buffett, who was speaking of investors during a financial depression when he said ‘It's only when the tide goes out, that you see who's been swimming naked.'

Well, lockdown and all its consequences for our work, our income, and our savings has certainly been the equivalent of the (financial) tide going out, and it has certainly revealed a lot about us.

Here's what we have found – and why we should be concerned.

The Department for Work and Pensions (DWP), who have information about all this stuff, tell us that when lockdown hit us in March last year, one in ten (11 per cent) households hadn't a penny in savings.

In their ‘Family Resources Survey' just published, they say that lone parents had the worst of this, with a third (31 per cent) having nothing to fall back on.

Of those who did have something put away, half of families and four out of five lone parents had less than £1,500.

As lockdown impacted on our financial wellbeing, our costs and outgoings didn't go away of course: renters in the UK had to come up with an average of £142 a week, and mortgage holders £143.

Some related research by ‘Which' sheds further light on how the pandemic has hit finances, specifically in Northern Ireland.

One in ten (11 per cent) people in Northern Ireland said they had been forced to take a payment holiday in the past year, while one in 25 (4 per cent) said they'd had to do that more than once. Two in five (39 per cent) had to take unusual measures to make ends meet, such as borrowing from friends and family, or taking out credit.

Which? notes that these figures would probably have been much worse if it hadn't been for furlough under the Coronavirus Job Retention Scheme.

It is not surprising, then, that our capacity to build up reserves was also badly damaged. A quarter of people (28 per cent) said they had been unable to save as much as they otherwise would have.

This has also severely dented our confidence that the immediate future will be any more rosy: three quarters of us doubt that the economy will get any better in the next year.

Does all of this lead to any sensible conclusion? Some might say it tells us that we need to put more planning and thought into securing the financial wellbeing, not just of ourselves, but of our families as well.

We can't see round corners, so no-one knows what the medium-term future will bring.

Which gives me another chance to quote our company motto here at KFA: “Life's better with a plan.”

:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com

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