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Are 50% of Brits at risk of a cash emergency?

Half of British families have less than two months’ salary saved and would face major financial pressures if an unexpected cash emergency was to occur, new research from Lloyds Bank suggests.


The study questioned more than 3,000 people between October and December 2014 and found that despite improvements to the economy and consumer confidence, 50% of respondents have savings totalling less than the amount they earn in eight weeks. A further 34% were found to have less than one month’s income stashed away.


Should a major expenditure come around, such as substantial car repairs, many of these people would have no choice but to turn to credit.


Lloyds Bank Savings Index also asked people how much savings they felt they would need to be covered against unforeseen financial events and 48% said at least two months, while 21% stated they would need more than four months’ income to manage.


With mortgage and rent payments on top of household bills and travel expenses, it seems that many people are left with little at the end of each month and this is greatly hindering their ability to save up an emergency pot.


In February, Halifax (which is also now part of Lloyds Banking Group), carried out similar research and found that Christmas expenses severely impact the saving ability of many households.


Almost a third of savers (30%) said they did not put a single penny away in the three months leading up to the festive period, while a quarter admitted to raiding past savings in order to pay for presents and unexpected costs.


While not alluded to in either study, one reason many people do not have much in the way of savings could well be that they live beyond their means. Some have dubbed the attitude of younger financial customers, and their unwillingness to save as the “YOLO Effect”. Standing for “you only live once” in financial terms, it means spending what you have today and not thinking about tomorrow. This could be a much deeper seated problem in the UK economy of today. A disenchanted youth that have already lived through the global recession of 2007 – 2009, are struggling to get onto the property ladder and who have experienced the cost of living outpace any salary increases.


It is arguably from these circumstances that an instant gratification driving factor is born. They see an item they like and they want it straight away without thinking about the impact their spending will have in later weeks, months or even years. In some cases, they are even willing to get into debt in order to buy that must-have item and the thinking can extend to the property market, with some families taking out mortgages they will always struggle to repay.


A recent study by the Debt Advisory Centre (DAC) found that 16% of Brits (the equivalent of eight million people) have a debt problem, and 92% of that number admit they have serious worries over their borrowing habits with 49% saying it effects their sleep.


Those aged between 35 and 44 were found to be the most likely to have financial problems, with 19% admitting to debt concerns, while over 55s appear to be the most responsible as just 8% said they have an issue with income and borrowing.


DAC didn’t find any evidence to suggest there is a difference between the debt problems experienced by men and women, but women are twice as likely to worry about their financial commitments (33% compared to 16%).


It would be impossible to accurately estimate the extent British households would suffer if they encountered an unexpected expense, but if the study by Lloyds is correct, it’s safe to say that at least half of the population would have a problem on their hands. If unexpected cash emergencies did crop up in the lives of these families, such as the boiler breaking down without cover, it may lead to many having to compare short term loan deals to see them through.


As the UK economy improves, the likelihood of interest rates rising gets greater and that could also place a burden on those with variable rate mortgages. Past studies have found that a rise of 2% could plunge almost a third into arrears, with those in London and the South East the worst affected.


For some, that could lead to losing their homes, and people working in roles that require strong credit histories (such as finance) could find their livelihoods affected.


All this said, borrowing is no bad thing provided that people compare short-term loans and look for the best interest rates available. It is all about having a sensible attitude to risk and seeking out cheap loans with easy to understand terms and conditions.



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