An alarming report published by the Financial Conduct Authority this week paints a grim picture of the financial future for many in the UK. An astonishing 26 million people are described as ‘financially vulnerable’ with a growing gap between the wealth of young and old. A reliance on expensive credit products and reckless borrowing generally means there is a financial time bomb ticking.
The report based on a survey of 13,000 adults revealed that over 4 million 25-34 year olds are already in serious financial difficulty. The overall number will rise sharply if, as expected, interest rates start to rise with a staggering 17% of households saying they would struggle if mortgage repayments or rent rose by less than £50 per month.
There may be some unnecessary fear in these results with individuals too ready to plead imminent poverty but the scale of those under threat is too great to ignore. The fact is people are simply too ignorant about managing their financial futures responsibly with little understanding of the need or level of savings required for retirement being a prime example. With pressures on housing costs, inflationary rises in the price of utilities and travel, restrictions on welfare budgets and a well-documented transfer of wealth to older voters (rises in house prices, winter fuel allowances, triple locks on pensions, student loans etc.) taking their toll, perhaps the report is hardly surprising.
One statistic which is nearly always alarming is the household savings ratio. At an almost all time low compared to other developed countries, second only to the US, it needs to rise in the UK. Building an economy on credit and rampant consumerism is hardly a path to financial success in the long run. It is a moot point whether it reflects a generational change in values or record low interest rates; probably a combination of both. But with regard to the latter, it is worth remembering that inflation is never dead and rising interest rates are now not far away.
The need for comprehensive financial education from school age upwards with increased support from the private sector has never been more needed.
Lastly, specifically for those reliant on benefits, an immediate threat to their financial future is the roll out of Universal Credit. Whilst it is widely supported in principle, of the 8% of claimants so far effected, there are, it seems, too many horror stories developing of delayed payments creating real hardship. With Conservative MPs this week instructed not to vote in parliament on a Labour proposal to ‘pause’ the roll-out and the Government forced to make a U-turn so that the Universal Credit hotline is free (why wasn’t this the case from the start?) it is rapidly becoming a symbol of Conservative heartlessness. It would be ironic if initiatives such as this rather than the disarray over Brexit was the catalyst that ended this current administration.
Inside Right Politics 