Today England enters a second nationwide lockdown amid fears the NHS risks being overwhelmed by a spike in Coronavirus cases during the winter months.
Tom Selby, senior analyst at AJ Bell, considers what the first six months of lockdown can tell us about how people’s finances could be affected over the next four weeks.
1. Women are more likely to be financially worse-off than men*
“During the first six months of lockdown there was a clear gender divide, with 24% of women saying they were financially worse-off versus 20% of men. This could in part reflect the fact that some of the sectors most affected by lockdown – such as hospitality and retail – employ significant numbers of women.
“Many women also work in low paid and insecure jobs which were vulnerable to the economic effects of lockdown.
“There is no reason to think these factors will change significantly during this second lockdown, meaning millions of people – a disproportionate number of whom will be female – will face financial pain as winter draws closer.”
2. For those worse-off, one month of lockdown could cost over £400
“For those whose financial situation was worse as a result of the first national lockdown, the average amount lost during the first six months was £2,504. This suggests that, for those who are worse-off, a month of lockdown could cost over £400 on average.
“Again there was a gender divide, although this time it was men who reported being hit harder, to the tune of £3,000 over the six month period or £500 a month.
“Women who said they were worse-off, on-the-other hand, reported a £2,100 hit to their finances or £350 a month.”
3. Millions of people will see their finances improve during lockdown
“When it comes to our finances, lockdown also creates winners and losers. For just over a fifth (22%) of the population it represents a financial hit, primarily due to a loss of income resulting from being furloughed or losing their job
“However, for those lucky enough to remain in a job paying their full salary the new lockdown could have a positive financial impact. In fact, even those who have been furloughed could find themselves in a better position financially if their costs go down by more than their salary drops.
“During the first six months of lockdown 1-in-7 (14%) people said they were financially better-off, with the main savings being on everyday expenses such as going out and driving less, lower spending on commuting, and holiday cancellations. While the latter may be less of a factor in November and many have continued working from home, other expenses are likely to drop again.
“In terms of the numbers, those that were better-off than before lockdown estimated they were better off by an average of £2,544 over the six-month period or £424 a month.
“This was highest among 18-34 year olds who were £2,788 (£465 a month) better-off, compared to just £1,979 (£330 a month) for those aged 55 and over.
“It’s worth remembering that any financial impact in November will be compared to a restricted world of tiered local lockdowns rather than a pre-COVID world when people were spending more.”
4. As the ability to spend cash falls, millions are likely to save more
“One of the few positive stories emerging from the first six months of lockdown was that millions of people were able to pay off debt and save – many for the first time in their lives.
“In fact, in the second quarter of 2020 when COVID-19 restrictions were tightest, the ‘savings ratio’ - which measures how much people save as a proportion of their disposable income - hit a record high of 29.1%.
“In other words, for every £100 of post-tax income someone earned, almost £30 of it was saved, primarily in cash accounts.
“Many will see their bank balances boosted once again in this second lockdown. However, with Christmas round the corner it is possible any money saved in November will instead be reflected in lower credit card balances.”
5. Increased financial distress will inevitably lead to a surge in scam activity
“As lockdown measures are tightened and millions face up to financial hardship, one inevitable consequence will be scammers attempting to target an increasingly vulnerable population.
“During the first six months of lockdown, 2-in-5 people reported being targeted by a scam, with the figure rising to almost half (45%) for those aged 55-64**.
“This points to scammers targeting those who have recently gained access to their pension savings, and it is absolutely critical savers are alive to the rising risk of fraud during this period.
“Knowing the tell-tale signs of a pension scam – which include unsolicited investment offers, ‘guaranteed’ returns and ‘opportunities’ to access your retirement pot before age 55 – will leave you better positioned to avoid becoming a victim.”
*Research conducted by AJ Bell & Opinium in a nationally representative sample of 2,000 adults between 8 September – 11 September 2020.
**Survey of 2,031 UK adults conducted online by AJ Bell and Find out now on 23 September 2020
