Millions of working households are vulnerable to even a small disruption to their income, according to Royal London’s latest Financial Resilience report.
Interviews with around 4,000 adults led the mutual to conclude that financial resilience in the UK remains weak despite signs of recovery from the cost-of-living crisis.
Indeed, the report assessed the average UK household as being “economically exposed” with a financial resilience score of just 33%.
This highlights how many families are not prepared for an unexpected financial setback or rising costs.
Financially fragile
Employment is not a guarantee of financial security. Royal London has classed around a third (35%) of employees as “financially fragile” in that they have little in the way of savings or disposable income.
Indeed, this typically means average cash savings of around £1,100 and only £77 of discretionary income each month after essential spending.
A further 40% of families are considered “economically exposed” in that they have a small financial buffer but are still vulnerable to falling into a crisis.
This means that they have an average of around £13,000 cash in reserve, which is below the almost £20,000 UK average.
Unexpected challenges
These findings of the report highlight the importance of protection products in helping households deal with unexpected financial events. And they impact almost half of families.
Indeed, more than four in 10 (42%) adults have experienced a life-changing event in the past two years, such as bereavement, divorce or job loss.
Gregor Sked, senior protection technical manager at Royal London (pictured), said that when people think about protection, they focus on big life events, such as death or serious illness.
“Those conversations remain incredibly important, but modern family finances can be knocked off course by a much wider range of pressures.
“Income has always been the engine room of a family’s finances. Our Financial Resilience report shows many households are operating with very little financial breathing space, meaning even a short interruption to earnings can have significant consequences when cash savings are low and disposable income is limited.
“That’s why income protection should be viewed as part of a broader financial resilience strategy.
“Families aren’t simply looking to insure against illness; they’re looking for confidence that they will be able to withstand life’s unexpected challenges.”
