Before the COVID-19 pandemic, over a third (35%) of households in Great Britain were spending more than their disposable income, highlighting a prevalent financial vulnerability. This analysis, based on data from the Wealth and Assets Survey (WAS) and the Living Costs and Food Survey (LCF) from April 2018 to March 2020, explores how different household types managed their spending relative to their income. Understanding these pre-pandemic trends offers valuable context for assessing the current economic landscape and how wages compare in the UK.
Factors Influencing Spending and Financial Stability
Rising household costs, particularly energy prices, disproportionately impact lower-income households, making it harder to absorb unexpected expenses. While some households maintain higher spending levels by utilizing accumulated savings, others with limited financial buffers face difficult choices like cutbacks or borrowing. This disparity underscores the importance of understanding how your wage compares to the national average and within your specific demographic.
Nearly half (46%) of households exceeding their income had financial buffers lasting less than a year. This buffer comprises liquid assets like cash, savings, and easily accessible investments, excluding property or pensions. The ability to sustain overspending varies significantly among different household structures and regions across the UK.
Household Type and Financial Vulnerability
Household size plays a crucial role in financial vulnerability. Smaller households, especially those with single occupants, were more likely to overspend. More than half (57%) of working-age individuals living alone spent beyond their income, relying on a buffer that lasted only three to four months on average. Single-parent households facing similar challenges had even shorter buffers, averaging just one month.
In contrast, retired households, particularly couples, possessed more substantial financial cushions. Retired individuals living alone could sustain overspending for an average of three years, while retired couples had buffers lasting nearly seven years. This difference highlights the cumulative impact of long-term savings and the potential financial strain on younger, smaller households.
Regional Disparities in Overspending and Financial Security
Geographic location also influenced financial stability. Households in the North East, while among the most likely to overspend (39%), had buffers averaging only seven months. Conversely, households in the South East (43%) and South West (40%), despite higher overspending rates, had buffers exceeding two years.
London presented a unique scenario. While overspending was less prevalent (31%), those exceeding their income had buffers lasting only eight to nine months. This suggests a potential vulnerability despite lower overspending rates.
Conclusion: Understanding Your Financial Position in the UK
This pre-pandemic analysis reveals significant variations in spending habits and financial resilience across different household types and regions in the UK. By understanding these trends and how your personal circumstances compare, you can gain a clearer picture of your own financial well-being. Comparing your wage against national averages and considering your household structure and location are crucial steps in assessing your financial health and planning for the future. For detailed data on average overspending levels, refer to Table 4 of the accompanying dataset from the Office for National Statistics.
