Savings & borrowing caution urged after Covid’s ‘great financial divide’ – 2021 outlook

Martin Lewis compares savings to investing in stocks

Savers have been hit hard by coronavirus this year as the world’s economy was brought to a halt by the pandemic. While the effects of the disease have been broadly negative in all areas, a lucky few have been able to actually improve their financial standing in what Shawbrook Bank term the “great financial divide”.

The company analysed data from a survey of 2,000 UK adults, taken between November 29 and December 2 2020.

According to their findings, 64 percent of people who have suffered a loss of income in 2020 were worried about being unable to pay a large, unexpected bill.

Additionally, 39 percent revealed they were concerned about maintaining their current credit agreements into the new year.

On the flipside of this, many British people have managed to build their savings this year as expenses reduced and the same research showed families across the UK are keen to take advantage of this in 2021.

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Nearly a third (32 percent) of all respondents surveyed said their savings increased since the UK first went into lockdown in March and the majority (77 percent) of these people plan to spend the money next year.

According to Shawbrook Bank, the following are what consumers plan on splurging on in the coming months:

  • Holiday (31 percent)
  • Home improvements (25 percent)
  • Christmas (18 percent)
  • New house (18 percent)
  • New car or used car (14 percent)
  • Children’s/grandchildren’s savings (11 percent)
  • Consolidate debts (eight percent)
  • Wedding (eight percent)

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The differences in fortunes continued to be explored as consumer habits were examined.

Since the start of the first lockdown, 24 percent of the respondents said reduced outgoings had a positive impact on their finances and 21 percent used this year to pay down their debts.

However, a quarter of those surveyed said they were in a financially weaker position than they were before March, with 22 percent not expecting to be any better off by the end of 2021.

The research concluded by pointing out that while some people have managed to clear their debts this year, a slightly higher number of people (22 percent) have seen what they owe rise this year and 28 percent of people plan to borrow over the next 12 months.

Paul Went, a Managing Director at Shawbrook Bank, responded to the findings and provided advice for those who are struggling: “2020 has been a challenging year for us all and we have had to adapt to unprecedented circumstances.

“As a country, we entered a recession for the first time in 11 years.

“Families facing furlough or reduced hours have had to cut back on spending to meet everyday living costs while others have been lucky enough to put a little extra aside.

“Whatever category you fall into, the beginning of the year is a great time to assess your finances, and the coronavirus pandemic has only highlighted the importance of saving and budgeting.

“Taking money management back to the basics by reviewing how much you have coming in versus what is going out is always the best place to start if you want to get on top of your finances.

“Wherever possible people should aim to have three months of expenses saved up as a rule of thumb, as this will give you a buffer should the unexpected occur.

“For those thinking about borrowing or taking out new credit, this is not a decision to rush into,” he continued.

“Think carefully and take the time to shop around to make sure you are getting the best deal for you.

“If your circumstances change, would you be able to afford repayments? Do your research before committing to any additional finance and make sure you read the small print within any contracts.”

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