Lockdown savings pots drained as cost-of-living crisis bites


The cost-of-living crisis is decimating the savings Britons put aside during lockdown, as many are forced to use the cash to cover the rising costs of goods and bills.

A quarter of people who saved during the pandemic are now using those funds to meet the cost of day-to-day food shopping, according to research by wealth management company Quilter. 

Just under a fifth say they are using the savings to pay for car fuel while 14 per cent are using the money to pay for heating and electricity.

Baby boomers, those aged 57-75 years old, are most likely to have saved money during the period, but two in five say they have already dipped into the funds because of financial pressures.

In the past three months 41% of households have either broken into their savings or borrowed money in order to cover their costs.

Additionally, 16 per cent of the group have spent all their lockdown savings in the past six months, while the same number have said they have taken money out in order to help younger family members deal with ongoing inflation and increasing bills. 

And 17 per cent say they are now using the savings to pay for essentials. However, others in the generational group are managing to enjoy the money they put aside as just over a fifth say they have used the money to go on holiday abroad.

These findings tally with the results of Hargreaves Lansdown Savings and Resilience Barometer.

The report found that over the past three months, 41 per cent of households have either broken into their savings or borrowed money in order to cover their costs.  

The figures also show the cost-of-living crisis is going to hit those on lower incomes three times more than those on higher ones. And these people are less likely to have been able to save during lockdowns, leaving them more financially vulnerable.

Ian Browne, financial planning expert at Quilter, said: ‘Even those who were able to put some money aside have seen their savings rapidly swallowed up by rising costs – particularly on day-to-day bills such as food, car fuel and heating and electricity. Those without savings will be feeling the pressure even more keenly.

‘Millennials and Generation Xers have been hit the hardest, with 17 per cent and 14 per cent having spent all of their lockdown savings in the past three months respectively. 

‘With inflation marching ever higher, prices are set to continue rising and people with little to no savings to fall back on could begin to struggle.

‘It is vital that people take care of their finances, now more so than ever. If you find yourself with some spare cash and would like to help your loved ones, where possible you should seek professional advice from a financial planner to ensure you are passing on your money in the most tax efficient manner possible, while also making sure that you are left with enough money to help see you through this tricky period.’

Wages are set to remain flat over the next 12 months despite predictions that inflation could clime to 11%

Wages are set to remain flat over the next 12 months despite predictions that inflation could clime to 11%

Despite the widespread reports of people having ‘accidental savings’ stashed away, the new research reveals that just 53 per cent of people were able to put additional money aside into savings or investments during lockdowns, with younger generations less able to save, according to Quilter.

This means almost half of the population were unable to put aside any money and now lack these savings to fall back on to see them through the cost-of-living crisis.

And there is little hope on the horizon. Looking ahead, the report finds that wages are set to remain flat over the next 12 months even with the government interventions which will put money directly into people’s pockets.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown added: ‘The cost-of-living crisis is laying waste to the extra resilience we managed to build during the pandemic. 

‘It’s hitting those on lower incomes the hardest, leaving them with an impossible challenge to stay on top of their finances. And it’s not just causing huge problems right now, it’s building them for the future too.

‘Once inflation is taken into account, disposable income fell 3 per cent in the past three months, which has had a knock-on impact on every area of our finances.

‘Those on lower incomes will face the biggest challenges. 

‘The bottom 20 per cent of earners will see any savings from the pandemic wiped out over the next year. 

‘Given that they were less likely to have been able to build up savings during lockdowns, it means more of them being forced to borrow too.

‘As a result, the gulf between the resilience of higher and lower earners that grew during the pandemic, will widen again as the impact of the cost-of-living crisis kicks in.

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Sarah adds: ‘It’s not all plain sailing for higher earners either. More of them will hang onto at least some of their lockdown savings. 

‘However, as interest rates rise, it’s going to be harder to cover the cost of borrowing, especially for those with big mortgages who see their fixed rate deals expire. 

‘This will hit those on higher incomes particularly hard because they tend to borrow more. It means it’s worth this group addressing their borrowing sooner rather than later.’

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