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The consequences of damaged financial resilience

Inflation may have fallen slightly, but the cost of our weekly food basket is still on the rise
Inflation may have fallen slightly, but the cost of our weekly food basket is still on the rise Inflation may have fallen slightly, but the cost of our weekly food basket is still on the rise

ARE you financially resilient, or is your financial resilience a bit battered, bruised and dented?

Inflation may have fallen (a bit) to 10.5 per cent this week, but don’t be fooled: costs of food and fuel are still on the rise. We are living in challenging times.

Our ‘financial resilience’ is our ability to roll with the punches if we’re hit by sudden and unexpected financial setbacks, our ability to recover from an adverse financial event.

It’s not only lower earners whose resilience has been dented. Some new research by the Bristol-based investment company Hargreaves Lansdown (HL) concludes that a third of us now have very poor debt resilience.

They’re also saying that higher earners are actually more likely to be affected than lower earners, as they feel their higher salary will protect their ability to repay debt, while lower earners are more reluctant to borrow, if they can avoid it, and borrow less when they do.

HL warn higher earners about misplaced confidence that their income will cover the cost of greater debts, saying that the last few years have shown how easy it is to be caught out by the unexpected.

HL show that of the top 40 per cent of earners in the UK, over a third (38 per cent) now have poor or very poor debt resilience, which is another way of saying they struggle to repay any debt they have.

There are a number of social groups that are particularly at risk over debts, and guessing who is not rocket science.

HL say that four out of five single people living alone are likely not to have enough emergency savings , compared to just half of couples.

Only 14 per cent of singles have enough cash left over at the end of the month to be considered resilient, compared to half of couples, and in terms of their plans for retirement, only a third of singles are on track, compared to half of couples.

As you would expect, singles with a child or children have it even harder. Three quarters of single parents find it difficult to keep their heads above water, compared to just a quarter of couples with children.

What are the immediate consequences of damaged financial resilience? The Office for National Statistics (ONS) confirms what HL have found: it’s the inability to repay. ONS figures show that one in 8 per cent of us have had an unpaid bill recently, which rose to one in 10 of 16-29 year olds, and 13 per cent of 30-49 year olds.

There is, however, hope that the light at the end of the tunnel will soon be turned back on. We mentioned that, while inflation is still in the stratosphere at 10.5 per cent (against the Bank of England’s target of 2 per cent), the National Institute of Economic and Social Research predicts a rapid fall in inflation from 2023, returning to its target rate of 2 per cent in mid-2025.

It’s never too soon to take financial advice, and plan ahead for the days when our financial resilience will lift itself, bruised and battered, back up off the floor, dust itself down, and get on track again.

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