Families not talking about finances despite money worries
44% of families who are "just about managing" with money have never had a conversation about their longer term financial security, according to new research from HSBC.
Published as part of the bank's Power of Protection report, called Facing the Future, the research also revealed that over one third of people in the UK expect to become worse off over the next three years.
And given that the Consumer Price Index (CPI) is set to show a rise from 2.6% to 2.8% for the month between July and August, while wage growth lags behind at around 2.2%, it would indeed seem that many people are likely to see such an expected fall in living standards.
Yet for their part, HSBC recommend four steps for all households to take in order to better "face the future", and while they obviously won't do much for inflation or wage growth, they will at least give people a stronger handle on where they stand financially.
For the most part, HSBC's study of financial security - which surveyed 1,000 people - confirms things that many readers would probably have suspected already.
For one, it reveals that 28% of people "feel constrained by their finances", in that they have to cut back on luxury items and other purchases in order to make ends meet from month to month.
Yet some of its findings are a bit more revelatory, such as its discovery that a whopping 84% of households haven't taken out an insurance policy that would cover their everyday costs in the event of the main breadwinner(s) becoming unable to work.
While it's understandable as to why the majority of such households don't feel able to afford taking out an appropriate policy, the risks of not doing so in the current economic climate are particularly grave, since recent reports have found that the average worker has only a month's worth of savings on which they could survive.
This was in fact confirmed by HSBC's report, which similarly observed that 47% of people believe their dependents wouldn't be able to manage financially if they had to stop working.
However, what makes this worse for the authors of HSBC's report is that, even though many people are facing considerable problems moneywise, many are simply choosing to ignore their situations, which can only make matters worse.
Not only does it reveal that 44% of "just about managing" families have never spoken seriously about their finances, but it also learnt that 75% of people haven't thought about drawing up a will and that 79% of people don't have a retirement plan.
On top of this, it found that 81% of people who have had a conversation about their longer term finances are "managing well".
On the basis of such stark results, HSBC's Head of UK Premier & Wealth Insights, Michelle Andrews, says, "Long-term financial planning allows people to be in the strongest possible position to support their families and achieve their own aspirations. We would encourage everyone to think about the future and regularly assess their financial situation".
Incomes and living costs
Of course, things aren't as simple as merely talking about your finances in order to sort them out, since as we've seen before in the case of saving and pensions, the biggest reason why people don't do financially sensible things is that they often can't afford to do them.
Indeed, and in light of how inflation has been rising since the beginning of the year, and is due to hit 2.8% when wage growth hovers at 2.2%, it's likely that the inability of many people to plan for their financial futures won't be rectified.
This is all the more so when a study commissioned by the Local Government Association and published last week discovered that over two million low-income families will be £50 a year worse off by the end of the decade.
Talk saves lives
That said, even if people are struggling to make ends meet, it never hurts to think and talk things through, with HSBC recommending the following actions as a way of easing a household's situation:
- Identify your priorities: plan in terms of what's important to you
- Assess your finances: think about how secure your income is
- Plan for the whole family: consider financial protection in case of emergencies
- Talk about the future: discuss with your family ways to improve your financial security
While such actions won't make an overnight difference to a household's finances, they will at least make it likelier for the people involved to identify areas ways in which these finances can be improved, as well as strengthened against the unstable economic winds into which the UK currently seems to be sailing.
And they offer good principles to follow in general, whether taking out a loan, applying for a credit card, or opening a new current account.