Generation Rent is wrung dry, and the spending squeeze is making it worse

Sarah Coles, personal finance analyst at Hargreaves Lansdown, comments on results of a Focaldata survey in June*, showing Generation Rent is wrung dry, and the spending squeeze is making it worse.

Key findings from survey:

More than one in three (35%) private renters could last less than a month on their savings – compared to one in six (17%) of those with a mortgage, and one in twenty (6%) of those who own outright.
The resilience gap between renters and owners grows over time, and is biggest among the over 65s.
Only one in five (19%) private renters say their finances are in good shape, compared to half (50%) of those who own their own home outright, and a third (35%) of those with a mortgage.
Just over a quarter (26%) of property owners save less than £50 a month, compared to just under half (48%) of renters.

Sarah Coles says:

“Generation Rent is being wrung dry, and the spending squeeze is making it worse. Only one in five say their finances are in good shape and more than one in three couldn’t last a month on their savings. Their finances are on a knife edge, so even the smallest surprise runs the risk of causing financial chaos. Fortunately, there are ways to build your resilience, even when you’re renting.

“You might think this is a problem for young renters, and is just a function of starting out in life with a relatively low income and higher outgoings, before you’ve had the chance to build up any savings. However, the savings gap between renters and owners actually grows as we get older, and is highest among those aged 65 and over. If you’re part of Generation Rent, you need to improve your resilience right now, because it’s not automatically going to get easier over time.

“Renters have to work much harder to build their resilience, because they’re hamstrung by the fact they spend far more of their income on rent than owners spend on the mortgage. On average, almost 30% of their income goes on rent, compared to less than 20% for those with a mortgage. It means there’s far less in the budget to save for emergencies. Working people should have 3-6 months’ worth of essential expenses in an easy access account just in case of nasty surprises, and retirees should have 1-3 years’ worth, which can seem like a mountain to climb when you’re only just making ends meet.

“The spending squeeze has made everything harder, with the cost of everything from petrol to energy bills and food going through the roof. However, there are still some techniques we can use to free up enough cash to put a little aside every month to build our resilience.”

5 steps to resilience for Generation Rent:

Draw up a budget. It’s the easiest way to keep on top of your finances, but so many of us don’t get round to it. Make a list of everything coming in and everything going out, and then you can tinker with the figures to find a way to have a little left over each month.
For some people, this will be a case of giving up things you don’t get an awful lot of value for, shopping around and trading down. For other people there will be some bigger lifestyle changes on the cards. Try not to rule anything out at this stage.
Once you’ve freed up a sum, start with debt. The more you’re spending on debt repayments and interest, the harder it will be to make ends meet. See if you can switch your debts to pay less interest. Once you’ve switched, keep up minimum payments on everything, but focus your efforts on paying off the debt with the highest interest rate first.
Give yourself strict rules on debt in future – otherwise you’ll be stuck in the emergency debt repayment step for life. You should never borrow for things you want – only for the things you need – and you should never borrow without a fool-proof and affordable plan for paying it back.
Build an emergency safety net. Once your debt is repaid, you can use the cash you have freed up to work towards building 3-6 months’ worth of essential spending in an easy access account, just in case of emergencies. It feels like an enormous target, but when you’re hit by the unexpected, you’ll be grateful for whatever you’ve managed to put away.

* A nationally representative survey of 10,030 UK adults

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay