Sarah Coles, head of personal finance, Hargreaves Lansdown: “Financial resilience begins at 35. Physically we may be just past the peak, but financially we’re going from strength to strength. The HL Savings and Resilience Barometer found that our finances tend to improve as we go through our early adult life until they reach a tipping point at 35 - where more people have ‘good’ or ‘great’ levels of resilience than those who don’t (51%). It then grows robustly throughout our 30s and 40s.
Resilience patterns
Typically, when we start out in our adult life, we have the worst of all worlds financially. We’re earning less on average, we haven’t had the time or cash to start saving or investing, we spend a larger proportion of our income on the absolute essentials, and we may also have debts to pay. It’s why overall 20-somethings have such low resilience, and why fewer than a third of those aged 20-24 (31%) have enough emergency savings – compared to 65% overall.
As we enter our 30s, we earn more, but we also tend to hit some of the more expensive milestones in life. The average first time buyer outside London is 32, which is always going to stretch your finances. Meanwhile, on average women have their first child just shy of their 31st birthday, and men just before they are 34, so they can spend the lion’s share of their 30s covering childcare bills and the rising cost of housing and feeding their family.
On reaching our 40s, we’ll often be past some of these expensive years. On average we also hit peak earnings, so we have the opportunity to prioritise things like emergency savings funds, protecting our family and getting on track with longer-term planning.
Resilience actually peaks at 45-49, before dropping back very slowly. However, it stays above 50% until we hit the age of 60. The HL Barometer only measures working people, so early retirees will drop out of the figures, and those working past the age of 60 will generally tend to be less well off.
The future
But while, overall, we can expect these trends to endure, there’s a strong chance they start to shift. The age at which we buy a house and start a family has been increasing over the years. House prices have also become increasingly unaffordable, and while the imbalance of supply and demand prevails, it could mean we start to see people eventually hit their late 30s still saving for a property.
Meanwhile, the start of automatic enrolment into pensions in 2012 means far more people have a pension. However, the demise of final salary pensions means those pensions tend to be smaller. While some people in their late 40s and 50s may have these more generous pensions, it’s not going to be the case when today’s 20-somethings hit the same age. It could mean we see people having to work for longer to prioritise their pension savings.
What can you do?
It means that whatever age you are, it’s worth taking stock and doing what you can to get on track. You should be aiming for enough emergency savings to cover 3-6 months’ worth of essential spending in an easy access account while you’re working. At the same time, you need to consider insurance cover and what position you would be in if you were unable to work because of an accident or illness. If you have any liabilities or anyone relying on you, you also need to make sure you have enough life cover. For the longer term, use a pension calculator to see if you’re on track for the retirement you need.
This will reveal your priorities. The you can draw up a budget and work out how to free up the cash to put towards them. You can set up a direct debit every month on payday to cover the most pressing gaps in your finances. Some people will need to pay down expensive short-term debts, some will pay into an easy access savings account to beef up their emergency savings, some will boost their pension or SIPP contributions, and some will use a direct debit for regular investments into a stocks and shares ISA. In many cases, there’s no one right answer, and you will be contributing to more than one pot at a time.
If you can’t afford to do as much as you'd like, don’t panic. These figures show you’re far from alone. The key is to establish good habits, then each time you get a pay rise or a lump sum, you can boost your monthly payments and work towards getting on track. The aim isn’t to reach perfection overnight, but to build your resilience as soon as it’s practically possible.”
|
