How COVID-19 Affected Household Finances

The COVID-19 pandemic has wreaked havoc on businesses and governments, but one also has to focus on how it has affected homes and regular citizens. We all know that unemployment has risen to 4.9%, a 1.2% increase compared to the year prior. Studies done by the Bank of England show that 28% of households experienced a decrease in income due to the pandemic. Self-employed individuals have it even worse, with 66% of them also losing income. As a natural result, household spending decreased by 57%.

What else has been affected and how will households move forward?

Average household savings increased

Because of quarantine, imposed social distancing, school closures, and the general fear of getting infected, the typical avenues for household spending decreased. This resulted in most families set aside more savings than they did in 2019. Household savings in 2020 rose to 29% compared to 6.8% of the previous year. The Bank of England also claimed that the excess savings totalled £100 billion.

Pension pots are shaky

The Financial Times Stock Exchange (FTSE) 100 experienced a 14% fall compared to previous years, with some shares crashing to abysmal lows. Thankfully, pensions didn’t suffer as a result of the FTSE drop, but with some companies facing closure due to financial difficulty like the Arcadia Group (parent company of retail brands Topshop, Dorothy Perkins, etc.), employees are facing anxiety over whether they’ll get their pension at all. The good news is that there is a system to protect the pensioners of companies that go bust. However, it may be a good idea to consider diversifying your pension funds to minimize risks. Another issue that citizens are facing is that the State Pension claiming age is increasing to 66.

UK ex-pats are also vulnerable to running into trouble when accessing their pension, from bank delays to access charges. Consult with financial agencies that provide pensions for expats for a more stable pension plan.

Average prices rose to 0.3%

Stores were giving heavy discounts to offset the decreased spending, and this helped keep inflation down to 0.3%. The prices of petrol and diesel were the most dramatic, with a litre of petrol dropping to 112.6p, more than a 10% drop from last year’s 125.5p and a litre of diesel going from 130.3p in 2019 to 117.4p by the end of 2020.

Despite the tough financial situation for some families during the pandemic, 65% of households claim that they experienced no income change during 2020 while 8% received an increase in income. These, coupled with the larger average household saving rate, has led experts to predict that once the COVID-19 pandemic comes to an end, people will be spending more in a bid to celebrate. People are expected to use up the money they saved on travel, eating out, and all the other luxuries we missed out on when we were all forced to stay inside. On the other hand, people are also expected to be more careful with money, as 2020 taught many the importance of keeping money set aside for unexpected crises.