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How Covid has affected our personal finances over the last year

Covid has changed everything, including the way we save (Picture: Getty Images/iStockphoto)

It has been a year since many of us packed in our office life, started working from home and entered a very different phase in terms of our socialising and leisure pursuits.

The Covid lockdown has changed almost every aspect of our lives, and that includes how we handle our finances.

While many of us have saved more, others have struggled with reduced incomes and we’ve started spending differently, investing in different types of assets and thinking more about how to fund our futures.

Here, we evaluate how everything has shifted since those lockdown announcements this time last year.

Spending

Since Covid led to the closure of non-essential retail stores – and made us wary about the cleanliness of handling what others have touched – we’re not only spending our money on different things, but in different ways, too.

Many of us hardly use cash. The amount of money withdrawn from cashpoints has dropped by 43 per cent in the last year, according to ATM provider Link.

Instead, we have turned to cards. The limit for contactless payments rose from £30 to £45 last March, reflecting a desire for fewer touchpoints in our lives, and this is now set to rise to £100.

Covid has changed the way we shop, with 51% more spent at supermarkets (Picture: Getty Images/iStockphoto)

Much more of our money is now spent online. Debit card data from Lloyds Bank found that, more than half (55%) of its customers’ money was spent online by the end of February 2021.

At the same time last year, the figure was 38%.

With lockdown restricting our leisure activities, the types of purchases we make have also changed.

On average, households have spent 184% more on DIY, while 51% more has been spent at the supermarket since March last year.

Meanwhile, home working has pushed up the household bills. According to current account provider Monese, utilities bills shot up 69% in 2020 taking the estimated per-household cost to £2,178.

Norris Koppel, from Monese, says he hopes that some of these spending changes will not be permanent.

‘As we start to see the end of this long tunnel of restrictions, we hope to see some return to pre-Covid spending in areas such as restaurants and bars, hotels, barbers and beauty salons and theatres and cinemas,’ he says.

Money worries

Coronavirus has hit our economy, but not everyone has suffered equally.
Redundancies have risen at the fastest rate on record, driving up unemployment to 5.1% in the three months to the end of December.

Furlough and the government’s business support schemes have cushioned the blow somewhat for many, but with furlough a maximum of 80% of most employees’ salaries, many people are earning less than before.

Prudential’s new Family Wealth report reveals that the biggest money worry for the next 12 months is the need to use savings to make ends meet, while 18% of respondents are worried about having a reduced income and 17% are concerned about being made redundant.

An estimated half a million people are in rent or mortgage arrears due to coronavirus, while some 130,000 households are still taking advantage of mortgage payment holidays. Once these come to an end, and the furlough scheme ends, money worries may turn into a debt crisis for some.

Savings

While some have struggled with their finances due to coronavirus, many others have built up a huge cash cushion, ready to save or splurge.

According to Scottish Friendly’s recent research, nearly half (46%) of Brits have seen their cash savings increase over the past year. Collectively they are estimated to be holding an extra £192 billion.

Bank of England figures also showed that many have tackled outstanding debt during this time, with £16.6bn repaid on credit cards and loans.

Meanwhile, the household savings ratio – which measures household savings at a proportion of disposable income – hit a record high of 27% in June last year.

Pauline van Brakel, chief product officer at financial app Yolt, says that UK adults have saved an average of £1,250 since March last year.

‘It is fantastic to see that many people already have some form of savings set aside to weather any future financial shocks, especially in the face of adversity and uncertain economic conditions,’ she says.

‘However, it is really important to note that not everyone is in this position – some people are facing real economic hardship and saving anything at the moment may feel like a tall order for those who have been harder hit.

‘Although understandably the current climate is challenging, people should look at ways they can protect themselves and the steps they can take, including knowing what they have coming in each month, and reviewing their spending and regular outgoings, so they can budget for the weeks or months ahead.’

With interest rates at record lows of 0.1% experts warn that our pandemic savings may lose value if we leave them in the bank.

‘The government’s huge stimulus packages have drastically increased the money supply to households over the past 12 months, while spending restrictions have allowed many families to pour extra money into their savings.

‘These two factors combined mean that overall Brits are now sitting on a massive cash pile,’ says Kevin Brown, savings specialist at Scottish Friendly.

‘This week marks exactly a year since the Bank of England cut interest rates to 0.1%, the lowest level in the Bank’s 325-year history. With the end of lockdown on the horizon, we are anticipating a spending frenzy as many consumers start to enjoy some of their extra cash.

‘However, this is likely to drive inflation upwards this year, which could add to savers’ woe.

Fundraising, IPO, investment, a group of characters standing and walking next to a stack of coins
The pandemic has made young people think about their future retirement (Picture: Getty Images/iStockphoto)

Retirement plans

‘Anyone with savings in a bank or building society should be aware that the real value of their cash could be further eroded if inflation does start to tick upwards.’

Workers with time on their hands have had time to consider how they might plan for retirement, but for some a slump in investment values or the need to help out family has delayed stopping work.

A study for British Seniors found that more than a fifth of over-50s have delayed their retirement plans due to Covid, with the average delay at more than two years.

For younger people, though, the pandemic has been a catalyst for retirement savings. Figures from Netwealth found that 15% of 35 to 44-year-olds were increasing pension contributions, while 8% were updating their will.

‘The pandemic has led to increased and often competing financial pressures, with many feeling the squeeze more acutely during the latest lockdown. This, combined with the renewed perspective the virus has given many of us, has led to a significant uptick in people thinking more holistically about their futures,’ says Charlotte Ransom, Netwealth CEO.

Investment

The coronavirus pandemic has caused significant stock market volatility, with a crash followed by a return to higher ground for the benchmark FTSE 100. The stock market, which was well above 7,500 in January 2020, plunged to under 5,200 at the end of March, before bouncing back to more than 6,700.

The fact that so many people made large amounts of money in the bounce, as well as soaring Bitcoin prices and increased disposable income, has led to more interest in investing from young people and novices.

DIY investment platform Interactive Investor says it has seen a significant rise in beginner and younger investors. In Quarter 4 of 2020, a quarter of new Interactive Investor customers were under 35.

Rival Hargreaves Lansdown, too, says that the average age of its investors has dropped – from 45 to 37 over the past eight years.

Becky O’Connor, head of pensions and savings at Interactive Investor, says the renewed interest is good news. ‘Greater awareness of the benefits of investing among younger people is a good thing, despite the recent Reddit-fuelled rise of Gamestop, the rise of social media investment influencers and the constant talk of bitcoin successes driving some young people to act in a very risky way.

‘Engaging young people has always been one area where the industry has struggled. But young people need to learn the right kind of risks to be taking. They need to be taught that there is much more to investing than a quick punt on a hyped-up stock, which might go badly wrong.

If the fingers of younger investors get burned now and that puts them off investing in the future, they could miss a golden opportunity to help protect their future wellbeing, through sensible, long-term investing.’

Future outlook

The Bank of England recently referred to the economic outlook as ‘unusually uncertain’, and the future of our personal finances is tied to many things outside our control, including the vaccine rollout and any new Covid variants.

And it remains to be seen permanent the changes to our money management will be once some form of normality has returned. For now, at least, though, there’s a lot for British households to reflect on as they make decisions about how to manage their finances in the years to come.

For money-saving advice as well as chat about cash and alerts on deals and discounts, join Metro.co.uk’s Facebook group, Money Pot.

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