COVID-19 has had a profound impact on our bank balances, with individuals sitting on two sides of a huge divide. While some have found that they’ve more cash than ever, thanks to the lack of commuting and expensive evenings out, others are furloughed on low wages or have lost work altogether.
‘The virus is having unequal financial impacts,’ explains behavioural scientist Jessica Exton from ING Bank. The bank’s research found that while many people have managed to save more since lockdown, those who had few savings to start with were saving less than before.
‘The financial divide between those who have a savings buffer and those living from month to month may increase even further in the wake of lockdown,’ Jessica adds.
Whichever side of the divide you are on, the sudden — and shocking -events so far in 2020 have important financial lessons for us all. As we emerge blinking into the sunlight, here are some financial lessons to take from our recent experiences.
Everyone needs a buffer
With interest rates at record lows in recent years, saving has scarcely been a fashionable or lucrative option. But sudden shocks like the coronavirus lockdown exposed the vulnerabilities of those with no ‘rainy day’ fund.
‘The crisis has also shown us what an enormous difference it can make to have emergency savings to fall back on,’ says Sarah Coles, personal finance expert from Hargreaves Lansdown.
‘Around one in four people have been wrestling with changes in their circumstances — most of whom have seen their income fall. Those who had an emergency savings safety net have found it far easier to soldier on.’
Sarah recommends storing money in an easy access savings account, so that you can get to it as soon as you need it. These have very low interest rates right now, with the best paying being ICICI Bank’s one per cent SuperSaver account and NS&I’s Direct Saver, also paying one per cent, but it’s still worth it for the security.
‘In an ideal world we should all have three to six months’ worth of expenses in an easy access account, but as we enter a really uncertain period, you may be glad for every penny you’re able to put away now,’ Sarah adds.
Your credit card is a powerful weapon
It might seem counter-intuitive to spend on a credit card when life is uncertain, but the Covid-19 lockdown has just exposed the differences between those who use them and those that don’t.
Credit card users have Section 75 protection on purchases made on their credit card, which means if a product or service isn’t up to scratch, or the company goes bankrupt or is unable to deliver, it’s possible to claim the money back from the credit card company.
With companies cancelling holidays, flights and theatre tickets, and falling into bankruptcy themselves, Section 75 has been important over the past few months, says Salman Haqqi, personal finance expert at money.co.uk, who describes it as ‘brilliant to ensure peace of mind’.
‘For example, if you bought tickets for an event that got cancelled, you may be able to claim back your travel and hotel costs from your credit card company,’ Salman says.
Section 75 protection only covers individual purchases over £100 and up to £30,000 — but even if you have just paid a £100 deposit on a credit card, you can claim it back.
Before asking your credit card company for your money back, ensure you raise a dispute with the retailer. If your credit card provider rejects your claim, you can take your complaint to the Financial Ombudsman Service, which is free for consumers.
Are you insured? It’s never been more important
Health insurance, life cover and income protection insurance — all of these ‘protective’ policies have seen a massive rise in interest since lockdown began.
Rod Jones, from insurance comparison site ActiveQuote, says the company saw a ‘huge surge’ in people searching for insurance policies that would protect their income in March, when Covid-19 started to spread more in the UK.
Income-protection policies, which pay out if you are made redundant, are currently unavailable since the outbreak, but those who already had them will still receive payouts.
‘The hope now is that the tide becomes a wave and that, now the benefits have been seen so clearly in recent times, consumers finally begin to put IP in place as a matter of course alongside the rest of their domestic policies in future,’ says Rod.
There has also been a renewed interest in health insurance, which pays out if you are sick with a number of long-term conditions, and life insurance, which protects your family by paying an income or lump sum if you die. ‘The current situation offers a very timely reminder of the fragility of our household finances,’ says Gemma Harle, managing director of the mortgage and financial planning network at Quilter Financial Planning.
‘Too many people insure their possessions and forget to insure their biggest asset, which is themselves. Nobody wants to consider how they and their family might cope under difficult financial circumstances. But it is important to have those hard conversations,’ says Gemma.
You can buy these products online using sites like ActiveQuote. If you’re unsure of what’s right for you under the current circumstances, a financial adviser might be a good place to start. Try unbiased.co.uk or vouchedfor.com to find an independent adviser near you.
Also those planning for a staycation summer shouldn’t shirk on the travel cover. With Leicester’s local lockdown emphasising how quickly things can change, ensuring you have a comprehensive annual travel policy in place should protect you from unforeseen events. There are still some insurers who will cover for cancellation due to lockdown/illness, but you must always check the terms and conditions.
‘As the UK continues to navigate the coronavirus pandemic, it’s important to have adequate policy coverage for any trip to make sure you are protected should government guidance change. Some policies may not cover changes to circumstances,’ says Helen Chambers, head of travel insurance at moneysupermarket.com.
Financial education is vital
With huge swathes of the country home schooling our own children, we’ve finally got to grips with the UK curriculum, and its gaps.
Myron Johnson, from Interactive Investor, says that parents are realising that financial education is not compulsory in academies, private schools or faith schools, but is vital for children if they are to have a healthy relationship with money in the future.
‘With many families now taking a much more hands-on role in home learning, there’s more flexibility to talk about money management,’ he says. ‘Sadly, it isn’t just adults who worry about money, and learning about budgeting and the value of money can help foster a healthy relationship with money in the future.’
Fortunately there are online resources to help us teach our children. Try kickstartmoney.co.uk for an online programme, or Experian’s online financial education resource, Values, Money And Me, which helps five to 11-year-olds develop their knowledge of money and includes a family-learning programme.
Shake up your spending
We’re all familiar with tricks to cut spending, such as stopping your daily coffee, takeaway lunches and trips to the pub. The trouble is, these changes usually require willpower — unless an extraordinary event like a national lockdown stops our spending patterns.
As we return to a more normal life, many people expect to keep up their new frugal habits. A recent survey from the Centre For Economics And Business Research (CEBR) and investment platform eToro found that two-fifths of us want to continue saving as before after lockdown is fully lifted, a process that will require evaluation of which of our old routines we wish to go back to.
Pablo Shah, an economist from CEBR says that the lockdown has brought about ‘long-standing behavioural shifts’, thanks to narrowed spending opportunities, and money.co.uk found that Brits managed to save on average £396 in the first six weeks of the lockdown.
‘I’m teaching my daughter how to manage money’
Getting chickens during lockdown has given education consultant Melanie Harwood the opportunity to teach her daughter, Hannah-Jane, how to earn and manage cash. The 12-year-old has been getting up at 6am to feed, clean and take care of the 14 ex-battery hens the family have acquired, while she’s set up a business selling organic free-range eggs to the neighbours.
‘We cannot possibly eat the 11 or 12 eggs laid every day,’ explains education entrepreneur Melanie, from Hitchin, Hertfordshire, adding that Hannah-Jane came up with the idea of selling the excess.
‘She even wrote the letters to the householders in our local area by hand, herself. She wanted to know how to open a bank account to keep her money “safe”.
‘She now has her very own weekly customers that pay her £8 up front each month for six eggs each week. She is earning £60 a month! This was all her own idea and you should have seen her face when she saw the balance of her first ever bank account.
‘My dear old mum has been instrumental in guiding her and supporting her throughout this learning journey. I am super- impressed and very proud,’ adds Melanie.
‘We’re stockpiling a six-month savings cushion’
For Alexandra Watson, the Covid-19 lockdown emphasised her financial vulnerability. Together with her husband Scott, she had been building up a flameless candles business called Wickfree.
With most of the sales made through parties, she expected to lose her income overnight when social distancing was brought in. ‘We’ve actually been really fortunate, because people have bought more than we expected,’ she says. ‘But we realised that just because it was OK this time, doesn’t mean it will work out for us next time.’
Alexandra and Scott, from Nantwich, Cheshire, had just bought a dream home to share with their daughter, six-year-old Theia. To ensure that they feel secure in it, they’ve set a target to save six months of their financial outgoings — something they would never have considered before the pandemic.
‘Knowing our home is secure and our little girl is secure, and that we can pivot if we need to is really important now.’
‘Covid-19 has made everyone think about their health, but they should think about their financial health too,’ Alexandra, 46, says.
‘My spending habits will never go back to the old normal’
Karen Webber, from Stockport, has been amazed by how little she’s spent during lockdown, and believes that she’ll never go back to her old ways.
‘My biggest lesson from lockdown is that we can be OK with much less,’ says Karen, who owns ethical marketing business Goodness Marketing.
Karen, 40, Chris, 38, and sons Caleb and Lucas (aged nine and four) have enjoyed smaller pleasures that haven’t hit their wallets.
‘I was putting a lot of pressure on myself buying new toys and planning days out for the children, but they were no happier. They are as happy building a den and watching a film on television as they are going to the cinema.
‘We’ve saved money during the lockdown, and that’s partly because we’ve not been commuting and not paying for childcare, and my husband hasn’t been spending £6 on lunches.
‘We’ve also learned to spend what money we do have in our community, in the local shops that have supported us rather than spending with big chains.’
‘I believe that lockdown has taught us a simpler way to be, and I want to keep that up.’