More than two in five adults cut back on savings due to cost of living

Data from the FCA’s latest Financial Lives survey reveals how people have coped financially over the past year.

More than two in five (44%) adults said they had stopped saving or investing in 2023, or reduced their contributions, due to the rising cost of living. This is according to the latest Financial Lives survey from the Financial Conduct Authority (FCA).

At the same time, almost one quarter (23%) said they had drawn on their savings or investments to cover their day-to-day expenses.

However, it’s encouraging to see that only 3% of respondents had stopped or reduced their pension contributions.

It’s not surprising that people’s savings have suffered over the past 12 months, as the Financial Lives survey estimated that 7.4 million people were struggling to pay bills and credit payments.

While this is a smaller number than the figure from the previous year’s survey (10.9 million), it’s higher than the 5.8 million recorded in February 2020’s survey.

Worryingly, this latest survey also found that 5.5 million people had fallen behind or missed payments on household bills or credit commitments in the previous six months.

Cutting back

As people face rising costs across multiple areas, savings is one area where many have made changes to ensure they can afford their essential bills and expenses.

Insurance is another area where people have been cutting back, as 11% of respondents said they had cancelled an insurance policy or reduced their cover in the 12 months to January 2024. Meanwhile, 12% said they had chosen not to take out an insurance policy at all.

It’s inevitable that many people will want to find ways to cut down on insurance costs, especially with the price of car and home insurance premiums rising significantly in 2023, but it’s always important to have sufficient cover for your requirements.

Elsewhere, the survey found that 53% of people had cut back or delayed spending on smaller purchases, such as eating out, 52% had cut down on their gas and electricity usage and 26% had taken on more work to earn extra money.

Taking action

Although the survey indicates that the situation has generally improved from last year, with fewer people saying they are struggling to meet costs, it’s clear that many are still finding it difficult to afford their essential bills and expenses.

“It’s worrying that over five million people have struggled to keep up with their bills or credit commitments,” commented Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

“It is imperative that consumers speak to their provider and consider seeking debt advice as soon as they can. Avoiding any conversation to get up straight with financial commitments can just make things worse,” she explained.

Even if you haven’t fallen behind on payments, it’s still worth reviewing your finances on a regular basis to make sure you’re in as strong a position as possible.

“Those who feel financially unstable may need to take some time out to assess their overall household expenditure and work out whether they could afford to cut back, and how they can build up a savings pot moving forward,” Springall commented.

“There are simple ways to start budgeting, for example by using a mobile app, or by drafting up a simple monthly spreadsheet to analyse disposable income," she added.

Building an emergency fund

And, while staying on top of your essential expenses and other credit commitments should be the priority, it’s important to put away some money in savings if you can.

Having savings to fall back on can help to lessen the blow of any unexpected expenses, such as car repairs, or if you lose your job, for example, and can minimise the chances of your situation becoming more serious.

There are a range of savings accounts available, including fixed-rate bonds that pay a guaranteed rate in return for locking your money away for a specified period. There are also regular savings accounts that are designed for people who want to deposit a fixed sum each month.

But, because these types of accounts often set restrictions on how and when you can withdraw your money, they may not be suitable for everyone.

“If savers are not prepared to lock their money away, they would be wise to consider an easy access account for their nest egg,” Springall noted.

Easy access accounts can be a useful place to keep an emergency fund as you can dip into your savings as and when you need to.