oOnce upon a time there was a young woman who had £40,000 in the bank. This huge sum was saved and saved over 10 years with the help of the government's Lifetime ISA scheme. The ISA scheme gives you £1,000 as a gift if you deposit £4,000 a year, and oh – so it inevitably becomes Mum and Dad's bank (or in this case just Mum's). She felt safe and secure, knowing that no matter what happened – a sudden job loss or an unexpected health problem – she had a financial buffer to weather the storm.
Then she did what she had to do when she finally got that level of cash. In other words, she bought a house. And within the year she had lost almost every last penny of her once large savings. She (or should I say “me”) has now officially joined the ranks of 11 million working-age Britons who have less than £1,000 saved in the bank.
That's according to a new report from the Resolution Foundation and the abrdn Financial Fairness Trust, which found that people with assets of less than $1,000 make up about a third of working-age households. In the UK, it is calculated that each household would be £74 billion short of having enough money set aside for emergencies and retirement compared to if they had saved at least three months' worth of salary.
I almost laughed out loud when I saw this. 3 months salary? I think you'll be lucky if you save enough money for 3 days.
We purchased the property in the fall of 2022. Although I was living alone for the first time and had to cover all living expenses as a single-person household, it wasn't that bad financially at first. But with prices rising last year, a cost-of-living crisis began and unexpected expenses like a new roof took their toll. I found myself having to continually burn through what little savings I still had. Every month I deposit £200 into my rainy day fund. The week before payday each month, I transferred it back to my current account with a little extra money. As it stands, take a deep breath and you have exactly £305.69.
To put this into perspective, I work full time at a job that pays me in the top 25% of earners in the UK. I don't consider myself to have a particularly extravagant lifestyle. I don't own a car, I rarely buy clothes other than the occasional £5 vintage top, and thanks to my previous job as a travel editor, I'm in the crazy lucky position of not having to pay for a holiday in almost a decade. .
Of course, I love restaurant dinners and spicy margaritas. I could have given up this precious night with my friends if I really wanted to. But sometimes I wonder if there is any purpose. Yes, it's irresponsible, but I feel like I'll never be able to save enough money to cover big things like organizing a damp proof, getting married, or retiring (ha, what an idea!). Don't spend your disposable income. do Do I eat snacks that bring me joy?
These sentiments are shared by Grace*, a 40-year-old mother of one who works in a well-paying, full-time editorial job. She currently earns £50,000. Her partner also works full time. And yet they struggle to put anything aside each month.
She and her partner have a total of £102 in savings, but the amount of debt they have incurred due to unexpected tax bills means they are actually in the red. “I’ve always lived hand to mouth,” she says. Grace, whose early career was characterized by low-paying jobs, thought that if she earned more money, she would finally start saving. “But when that happens, I have a better life,” she says. “If you've had to wear a reasonably tight belt for a while, it can be tempting to enjoy some relaxation. Lifestyle creep is real. She thinks that if she earns more money, she can go to the movies instead of watching Netflix. We can afford to pay for a babysitter and eat out.”
‘Lifestyle creep’ is the idea that as income increases, standard of living also increases. Things that were previously considered luxuries have become the norm. This is why we see stories claiming wealthy people are struggling. Their spending grew in line with their finances. A new kitchen, a second home, private school tuition and a few holidays a year are now considered “necessities” rather than “nice-to-haves.” Congressman George Freeman is perhaps the perfect example of this phenomenon. He made headlines last month when he said he was quitting as science minister because he could no longer afford the mortgage payments. He achieved this despite being in the top 1% of all earners in the UK, with a salary of almost £120,000 per year.
But the mortgage problem highlighted by Freeman is real. Grace's mortgage interest rate was previously 1.5%. If you remortgage, that rate will jump to over 5% and cost you hundreds of pounds more per month. Meanwhile, childcare alone costs £1,500 a month. “Everything is too expensive.”
Ophie, 35, from Kent, earns much less than Grace but also spends much less. She works three jobs – artist, bartender and shop assistant – which means more to her than a full-time job. Ophie, who rents an apartment with her husband, who works full-time, has no expenses as a homeowner. She doesn't own a car. She is and she has no children. Despite this, she says she currently has just £130 in savings.
“At one time it would have terrified me,” she said. She said, “She felt like there was no way to escape… Now I’m just numb.”
Ophie, who has never quit a job since leaving education, has nevertheless always found it difficult to save money. “The cost-of-living crisis has not been helped by the follow-up to COVID-19,” she says. “But it was also during the financial crisis that I entered the workforce. “It was always difficult.”
Ophie has accepted that when an unexpectedly large bill comes up, she and her husband will simply “make it work.” Most recently, my beloved dog needed surgery that wasn't covered by pet insurance. The £900 cost of the procedure will be credited directly and repaid in monthly installments. “I don’t care about that at all these days,” she says of loans. “Sadly, I got used to it.”
Clare*, a deputy headteacher from East London who currently earns £46,000 a year, reports similar struggles. The mother of three has a personal and joint bank account, both of which are currently overdrawn. “Before I met her husband, I had money saved,” she says. “I’ve always liked money. But we bought our first house and did well, and after we had two kids we moved to a bigger house and renovated that too. In relation to workplace pay increases, our SLT (Senior Leadership Team) decided about four years ago to freeze salaries to help the school’s finances.”
She says it's “scary” to be in this financial situation at age 40, but she tries to look on the positive side. “I’m very lucky that I live in a beautiful house and I can afford to pay my bills.”
So how did we end up in a situation where so many of us have no financial safety net?
Education is one area where the UK has historically been weak. Two-thirds of young people who have experienced financial hardship believe better financial education would have helped them, a study conducted by the Center for Social Justice found. Financial education was officially added to the curriculum of secondary schools operated by local governments in 2014, but was mostly incorporated into non-core subjects such as PSHE. FT's Financial Literacy and Inclusion Campaign (Flic) found that pressure on teachers and lack of time were impacting provision. Meanwhile, even in the case of free schools or academies, it is still not mandatory.
And arriving early makes a difference. A 2022 survey from the Money and Pensions Service (MaPS) found that children who receive meaningful financial education are more likely to save money more regularly, feel more confident about managing their money, and demonstrate positive everyday money management skills. It turns out that it is.
There are at least some signs that things may be changing on this front. In November 2023, it was announced that England's financial education failures will be investigated through a formal review by lawmakers. The UK's Financial Wellbeing Strategy sets out a target to ensure that more than two million children and young people receive meaningful financial education by 2030.
The answer proposed by the Resolution Foundation, the think tank that led the original savings study, is to build on existing auto-enrolment pension schemes. It proposed employers and employees would increase their contributions by 6% each from 8% to 12% and put 2% of the total into an easily accessible “sidecar savings” scheme of up to £1,000. People can enter the pre-retirement phase when they need to.
For Grace, she's been thinking more about saving lately, but has little motivation to do so. “There’s really nothing to encourage us to save,” she says. “The government doesn’t want you to save. They want you to spend to help the economy. So I think going out to dinner really helps us all!”
*The name has been changed.