Millions of UK adults do not feel financially resilient and would not be able to manage a financial shock or loss of income, according to a new report from Zurich UK. Developed with neuroscientist Dr. Jack Lewis, the Cost of Resilience examines the impact that money, including having products designed to protect and insure against loss, have on feelings of resilience.
According to the research, one in three (34%) adults, the equivalent to more than 17.6 million adults across the UK, say they would not be able to recover quickly from an unexpected financial shock, such as an unanticipated period without household income or a sudden need to spend a significant sum. A further one in seven (15%) have no idea whether they would be able to cope or not.
Yet, the report found that almost a quarter (24%) of UK adults have no savings to fall back on and almost the same number (26%) do not feel in control of their life.
Feeling resilient is defined as the ability to recover from shock, emotional and financial. The study found that to feel financially resilient:
- Nearly two in five (37%) said it required them to have savings
- A quarter (22%) said they would need to not be in any debt
- One in seven (17%) said they would need a secure job
- A third (33%) said that earning between £1,000-£2,000 a month would help them to feel financially resilient. This increases to £2,000-£4,000 for almost a fifth (18%)
According to ONS, the average net UK individual income is £1,278 meaning that adults could be earning slightly less than the amount needed to feel financially resilient. This combined with people not being in a position to overcome a financial shock or loss of income - should they have to take time off work due to sickness - means many would struggle significantly if disaster was to strike.
While a third said they would struggle to recover from a financial shock or loss of income, only one in ten (11%) have Income Protection, a financial product that shields your pay against illness, injury or being unable to work. Instead, people are more likely to have insurance for their home (71%), holidays (70%) and mobile phone (18%).
There are misconceptions with products such as income protection, often with the price being too expensive being the most common. For a 35 year old professional earning the average salary of £27,000, wanting to protect 50% of their net income, it can cost as little as £9 a month - less than one medium coffee (£2.50) a week over the course of a month. The policy holder would benefit from a payout for up to two years if they were unable to work due to illness or injury.
The report also found that should an individual experience a financial shock or loss of income, UK adults would struggle to make financial sacrifices, with giving up the family home (51%), car (37%) and holidays (23%) proving the most difficult. More than one in ten (11%) have no idea of the impact a financial shock would have on their household income and they wouldn’t know what sacrifices they’d have to make.
- Giving up my home - 51%
- Giving up my car - 37%
- Not going on a family holiday - 23%
- Buy less/ no birthday/ Christmas presents - 23%
- Not buying any 'luxury' food items - 14%
- Not buying lunch when out - 13%
- Giving up weekly nights out (e.g. going out for dinner, drinks etc.) - 12%
- Giving up my cinema / movie subscription (e.g. Netflix) - 8%
- Giving up my gym membership - 7%
- Giving up my magazine subscription - 5%
Rose St Louis of Zurich UK comments, “It is worrying that one in three do not feel they would be able to recover from a financial shock or loss of income, and do not have the savings in place they need to feel financially resilient. The most valuable asset we have is ourselves and our ability to generate an income. Therefore, it’s a concern that nine in ten are likely to prioritise insuring their mobile phone over themselves.
“We need to encourage people to review their circumstances, assess the solutions available and consider what support exists to protect them and reduce feelings of financial vulnerability. Products like an Income Protection Plan, which is designed to provide a regular income if you are unable to work due to illness or disability, could help individuals to feel less vulnerable and more financially resilient.”
Dr Jack Lewis, Neuroscientist comments, “This study show all the hallmarks of a psychological phenomenon called the ‘availability heuristic’. This describes our tendency to feel a stronger perception of risk and so we feel more motivated to protect ourselves against that risk. Examples of when car, home and holiday insurance could come to the rescue are simply much more available than the benefits of income protection, because they are more commonly encountered in everyday life.
“By comparison, I cannot think of a single occasion when I heard someone explaining what a lifeline their Income Protection was when they lost their job, and I am sure this is the same for many others. We need to educate people and help them to understand that there’s support out there; there are products to ease the stress and worry of a financial shock and loss of income.”
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2059 adults. Fieldwork was undertaken between 1st - 4th June 2018. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).
According to the ONS, there are 51,767,543 adults in the UK - https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/datasets/populationestimatesforukenglandandwalesscotlandandnorthernireland. 34% equates to 17,600,964 UK adults
Average cost of a medium latte across Café Nero (£2.45), Starbucks (£2.60) and Costa Coffee (£2.55) is £2.53, Mutiplied by four (a month) is £10.12.