The disruption caused by the recent pandemic was phenomenal, sending shockwaves worldwide. And we are all still feeling the aftereffects now. In March 2020, the future became even less predictable. But 18 months on, we look at UK wealth and the wealth gap that continues to grow.
Across the board, people took a knock to their confidence in the security of their finances. However, some suffered more of a financial hit than others. Despite this, it was the first UK recession in 70 years in which wealth increased overall, meaning that the wealth gap between households continued to widen.
A report published by Resolution Foundation found that total household wealth increased by almost £900 billion during the pandemic, a six per cent increase on pre-pandemic levels. However, the distribution was uneven, and the wealth gap between the richest and the median families grew by £40,000 during the pandemic and now stands at 55 times typical household income.
What is the wealth gap year?
There have been inequalities in wealth distribution in the UK for a long time, and the year out we had because of the pandemic only accelerated this growing wealth gap.
As a result of the pandemic, UK savings increased and debt reduced, with the total net wealth increasing by around £134 billion, according to the (Wealth) gap year report. However, this is far from the whole story. Interestingly, as house prices ramped up and assets prices spiked with optimism over the vaccine, the wealth gap grew because of what you owned, not what you earned.
And although aggregate household debt has fallen, the ONS found that by December 2020, nearly 9 million people had to borrow more money than usual.
On top of that, those with a household income of below £10,000 were around 60% more likely to be furloughed. Conversely, 52% of people in the top income quintile continued to be paid their full salary, compared to just 28% of those in the lowest income quintile.
The ratio between household savings and disposable income increased from 8.9% in January to March 2020 to 25.9% in April-July 2020. However, it was primarily amongst families at the top of the income distribution that managed to save more during the pandemic.
Unfortunately, the pandemic had the worst effect on those at the bottom of the wealth distribution, further widening the gap between UK households.
To help bridge the wealth gap and reduce the lasting effects of the pandemic, we want to help encourage everyone to think about building a financial plan to prioritise their financial health.
Continuing good habits
If you’re lucky enough to have increased savings due to the pandemic and society closing its doors for some time, why not hold on to some of the good habits you formed?
Setting financial goals and objectives
35% of families with increased pandemic saving say they are likely or very likely to save more each month than they did pre-pandemic. And 43% say they will save more because they have learnt they don’t need to spend as much as before the pandemic.
Overall social consumption has slowed down as people have reprioritised, recognising the beauty in the simpler things in life, and the necessity for more time for ourselves at home. It might be tempting to want to spend the additional savings you’ve accumulated. However, we’d encourage you to take a step back and think about what this money could do for you looking at the bigger picture.
Learning from your mistakes
In life, we all make mistakes. Sometimes they’re unavoidable, and some are more costly than others, but what shapes us is how we learn from them.
Financial planning is not an exact science, and no plan is ever the same, but the important thing is having one and adapting when things don’t quite go the way you hoped.
Getting rid of your money worries
Whether you ended up with more or fewer savings after the pandemic, it’s fair to say that most people considered the security of their finances at one point or another.
And with everything else that we have going on in our own lives and the world, putting together a plan to eliminate your money worries will save you a lot of stress in the long run.
Having a financial plan is important
Whether you opt for a D.I.Y approach or work with a professional financial planner, having a financial roadmap is vital to keep you on the right track to achieve your financial and life goals.
In life, we tend to see spenders and savers. Neither one is right nor wrong, but we think a balance is better. Whether you have a habit of spending money without thinking of the consequences, or you focus on counting the pennies over enjoying experiences, financial planning provides the peace of mind to know if you’re doing the right thing. Imagine living your desired lifestyle now, knowing you can afford to for the rest of your life. Wealth forecasting does just that, and we think that is priceless!
If you have any questions or want to discuss your financial plan, please feel free to get in touch with us any time to have a chat with one of our independent financial advisers.