Financial resilience across the UK

What does it mean to be financially resilient? While the common goal is to have three to six months expenses readily accessible, i.e. cash or easy access savings, it can be a challenge to think – What’s the worst that can happen? And how can I give myself more security?

Most examples of potential financial shocks point to job loss, large unexpected bills, or change in relationship circumstances. Putting money aside in the event of any of these happening might seem like an improbable possibility. Being financially resilient is well understood to improve wellbeing and happiness.

The Yorkshire Building Society recently updated its report on the nation’s finances. Released each year, its survey’s 2000 people across the county to understand their financial resilience. It also uses publically available data from the ONS, Bank of England and the finance industry to establish a ‘Nest Egg score’ based on the following pillars:

Shock resilience– Annual household disposable income
– Share of households who could turn to savings if mortgage payments were to increase for a sustained period
Probability of income shocks– Claimant county relative the population
– Ratio of private to public sector jobs
Financial health– House price affordability ratio
– Rental affordability ratio
– Average household value of loans outstanding
– Average household value or mortgage loans outstanding
Planning for difficulty– Share of households who would turn to family and friends if mortgage payments were to increase for a sustained period
– Household propensity to save
– Household savings rate
Four pillars of financial security form Yorkshire Building Society’s Nest Egg score (data is compiled regionally)

Since 2014, the nation’s average nest egg score has deteriorated, where the overall average fell from 63 to 44. However, as demonstrated in the graph below, people were starting to look at their own financial security, planning for future difficulty, i.e. saving more, rising from 21 to 52 over the same period.

UK historical nest egg scores (Yorkshire Building Society “The Nations Nest Egg” report 2021)

So how much on average did the report establish was needed to be financially secure? Across the country, the cost of living and living standards are remarkably different; however, the average shortfall in an individual’s safety net was £7,720. Rising from £4,639 in East Midlands to £12,401 in Wales.

How people felt about what increase in the amount saved per month would contribute to feeling more financially comfortable also showed a wide disparity. Those in London wished to save £1,220 more than those in Scotland, saving an additional £217 per month. Over a year, this equates to a difference in saving between the two locations of over £12k.

The survey links the ability to be financially secure with mental health, wellbeing and enabling life choices. With a bigger nest egg impacting people’s happiness in the following ways (in order of importance)

  • Enabling me to look ahead and plan my future better
  • Making me feel less anxious or depressed
  • Allowing me to concentrate on interests, hobbies and my dream career
  • Improving my relationships with others

Crucially the report also asked what would make people feel more financially secure, with having more money in readily accessible cash savings ranking the highest, followed by paying off debt, owning a property and having more money in investments also ranking in the top five.

The report begins to demonstrate a trend towards a changing attitude towards financial resilience. This only increased throughout 2020 into this year, partly through the need to use savings or the lack of spending opportunities during the pandemic. Younger people were also more likely overall to spend and save money more carefully.

Financial resilience, the ability to withstand changes in your circumstances and financially security, the ability to make decisions for the long term to improve your health and wellbeing are intrinsically linked. A safety net provides support when you need it most, and a nest egg allows you to make choices that might not otherwise be available to you.

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