Are you one of the people who don’t have enough savings to cover a 25% drop in earnings?
You are not alone. According to an article by the Office for National Statistics (ONS) 55% of single parents don’t have enough savings to cope with even a modest drop in earnings. This study also found that close to 40% of adults reported they wouldn’t be able to save anything in the next 12 months.
This, my friends, is the ugly face of personal financial fragility.
The concept of personal financial fragility became even more important during the cost of living crisis.
It refers to a situation where an individual or family is unable to cope with financial crises, such as a sudden job loss, income drop or unexpected expense without incurring substantial debt. This vulnerability often means that an unexpected expense could push financially fragile people into financial chaos because they don’t have savings or an emergency fund.
Financial fragility in the UK is a concern, with a notable proportion of the population struggling to manage unexpected financial shocks. Approximately 26% of UK adults have less than £500 savings and a fifth have less than £100. Recent studies reveal that financial hardship is more pronounced among ethnic minority groups, with nearly 40% of individuals from Arab and Mixed White and Black African backgrounds experiencing financial difficulties.
Financially fragile individuals live pay to pay, with minimal savings or investment.
This is a problem because, without sufficient savings, even a minor reduction in income can lead to missed rent payments or skipped meals.
Similarly, a sudden car repair might force a choice between fixing the vehicle, essential for commuting to work or paying a utility bill. These scenarios underline the precarious balance in which many find themselves.
This fragility doesn’t just limit itself to financial aspects of life; it spills over into other areas, affecting mental and physical health, job performance, and family stability.
The stress of financial insecurity can lead to health issues like anxiety and depression, which in turn can affect an individual’s ability to perform at work or maintain relationships.
In essence, personal financial fragility is a pervasive issue that underscores the need for financial planning and emergency savings. It highlights the importance of financial literacy as a foundational skill to navigate today’s economic landscape and mitigate the risks associated with unexpected financial challenges.
Are you financially fragile?
(In my next post I offer a test to measure how financially fragile you are.)
Photo by CHUTTERSNAP on Unsplash