DURING the last year the Scottish Widow has added a new term to our financial vocabulary- ‘financially resilient’. This is also known as ‘having a financial plan’.
Being financially resilient includes having an ability to deal with your financial obligations, and having a plan for your financial future.
There is a difference between paying off debt, and becoming financially resilient or having a financial plan. At the risk of stating the obvious, paying off debt is paying what you owe. Having a financial plan is much more: it also involves building up your pension, and also having some savings.
With regard to this, there is some good news, and there is some not so good news, according to the Scottish Widows UK Household Finance Index 2021.
First, the good news. The latter half of 2020 and the opening months of 2021 have seen us go some way towards improving paying down our domestic debt, despite the fact that interest on savings has been low, and salaries (for many) have been less.
However, that’s an improvement coming from a low base. The months from March-July 2020 marked a low point in both our mood and our saving, as the pandemic, and the lack of nightlife and social life really took hold.
With more money that we couldn’t spend, however, we had a greater capability to save. This was the priority for families since the latter months of 2020.
However, for some, and due to the uncertainty of it all, saving for retirement seemed to take a back seat in the past 12 months. One in five households saved less towards their retirement, missing out on the opportunity to benefit from compound interest that happens when you save early and often.
Another 18 per cent of those surveyed said they would have drawn down funds from their pension had they been given the chance.
The main savings priorities were holidays (29 per cent), home improvements (22 per cent), and buying a property (20 per cent).
And despite having fewer opportunities to spend, one in 10 households have no savings at all, and 31 per cent have only enough to keep themselves going for three months.
Insurance against unexpected occurrences is another concern, and as we know, the thing about unexpected occurrences is that they can always be expected.
Only 36 per cent of households have life insurance, and only 17 per cent are covered for critical illness, which gives us financial security if we are tragically hit by cancer, heart attack, stroke, or the need for major surgery.
Only one in 10 of us have mortgage protection insurance, and only 18 per cent of us have income protection insurance, to protect our families in case we have to stop work for any reason.
A sense of financial wellbeing often takes a while, after an economic setback such as the last year has brought.
Those aged 20-55 are still hesitant about larger purchases such as cars or holidays, while the Baby Boomers, now over 55, who control 80 per cent of the private wealth and property in the UK, are more positive towards this type of spending.
Thanks to the roll-out of the vaccination programme, the end of the pandemic is probably in sight, and our confidence to get back to our financial planning has grown.
:: 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
