Britons Continue
To Feel the Squeeze
The findings of a new survey showing how the economic crisis has changed British financial behaviour
bodes ill for financial institutions. Companies that
develop pension products appealing to beleaguered
consumers will fare best.
Britons Continue To Feel the Squeeze
1
Considering the amount of media attention being given to the current British economic crisis,
it’s perhaps no surprise to learn that most Britons are feeling the squeeze financially. A.T. Kearney,
in conjunction with an external research partner, surveyed more than 2,000 British adults on the
ways in which they manage their finances and how this behaviour has changed since the onset
of the financial downturn (see sidebar: About the Study on page 4 ).
Some of the results are startling. For example, when asked to name their single most important
consideration regarding their overall financial situation, nearly half of all respondents (45 per
cent) say “making ends meet or providing for others”. Only 16 per cent respond with “making
investments” and 15 per cent with “paying off debts”. As few as 12 per cent say their main priority
is “saving for a rainy day” (see figure 1).
More interesting still, a comparison of the pre- and post-crisis findings reveals significant
differences. When asked to state what their priorities were before the economic crisis, only
28 per cent of the same people say “making ends meet or providing for others”.
These results highlight a marked decline in day-to-day financial circumstances, with more
people in post-crisis Britain now focusing on the basic essentials and fewer saving, investing,
or paying off debts. This difference is slightly more pronounced among women, with 48 per
cent stating that “making ends meet or providing for others” is their single biggest financial
consideration, compared with just 29 per cent who say they felt this way before the recession.
It appears that with finances so tight, post-recession Britain has begun to adopt a “live for today”
mentality, where families and individuals are more concerned about the financial resources they
will need to make it to the end of the month—or even the end of the week—than about saving or
investing for the future.
Figure 1
More Britons are focused on making ends meet or providing for others
Respondents (%)
Pre-crisis
Post-crisis
60%
45
40%
28
0%
21
20
20%
15
16
Paying off
debts
Investing
16
Making ends meet or
providing for others
15
12
Saving for
a rainy day
12
None, not sure,
can’t recall
Source: A.T. Kearney analysis
Britons Continue To Feel the Squeeze
2
Financial Concerns are Countrywide
Those in the 35–54 age bracket, a time when the cost of growing families, mortgage payments,
and credit card debt begins to put added pressure on household finances, seem to be the worst
affected by the financial crisis with 52 per cent stating their primary objective is making ends
meet or providing for others (see figure 2). Close behind them is the group with the lowest
income, 18 to 24 year olds; just under half (46 per cent) of those in this age bracket are now
chiefly concerned with trying to make ends meet.
Regardless of age, those with the lowest incomes, earning less than £15,000 a year, report the
greatest shift in priorities as a result of the recession. Fifty-six per cent in this group are focused
Figure 2
Making ends meet is top of mind among 18 to 24 and 35 to 54 year olds
Respondents (% by age group)
Pre-crisis
Post-crisis
60%
35–54
52
40%
34
19
20%
18
18
16
12
0%
Making ends meet or
providing for others
Paying off
debts
Investing
14
10
Saving for
a rainy day
8
None, not sure,
can’t recall
60%
18–24
46
42
40%
20%
21
19
24
19
14
2
0%
Making ends meet or
providing for others
7
4
Paying off
debts
Investing
Saving for
a rainy day
None, not sure,
can’t recall
Source: A.T. Kearney analysis
Britons Continue To Feel the Squeeze
3
Figure 3
Making ends meet or providing for others has become the most important financial
consideration for those with lower incomes
Respondents (%)
60%
Pre-crisis
Post-crisis
56
46
41
40%
31
29
33
32
27
20%
0%
33
27
24
15
Less than 15,000
15,000–24,999
Source: A.T. Kearney analysis
25,000–39,999
40,000–59,999
60,000–99,999
100,000+
Annual salary (£)
on trying to make ends meet, compared with just 31 per cent prior to the crisis (see figure 3).
Those making from £15,000 to £60,000 say they too are finding it difficult to make ends meet,
ranging from a 17 point difference for those in the £15,000 to £25,000 salary bracket to an 18
point difference in the £40,000 to £60,000 bracket.
Our findings mirror similar research in this area. A new report by MoneySupermarket.com, for
example, reveals that U.K. adults are so stretched financially that more than a quarter (26 per
cent) say they now instantly become stressed or worried when they receive a bill.
Worse still, more than half of this group (54 per cent) say that the biggest cause of their stress is
the fact that their bills just keep rising, making it difficult to predict what the exact amounts will
be and how to deal with them. Nearly a third (31 per cent) admit that they “feel panic” when a bill
About the Study
A.T. Kearney, in conjunction with
an external research company,
performed this research study
to analyse differences in the
underlying behaviour and
attitudes of U.K. consumers
toward retail financial services
before and after the financial
crisis. The fieldwork comprised
an online survey of 2,073 U.K.
adults, conducted over a 48-hour
period from December 16 to
19, 2011. Specific issues were
explored in relation to the
following topics: current
accounts; savings accounts;
secured and unsecured debt;
overall financial situation
priorities; channel usage; and
pension contributions. The
survey responses were analysed
with reference to aggregated
top-line results together with
more detailed analysis to explore
variation of responses by gender,
age, geographic region, marital
status, and annual income.
The survey results have been
supported by an additional
literature search, which has
incorporated directional trends
appropriate to the overall
findings and results.
Britons Continue To Feel the Squeeze
4
arrives, for the simple reason that more money is going out of their current account every
month than coming in.
It seems that no area in Britain is free from similar financial stress. Although we find some
geographic differences in terms of attitudes about current finances, U.K. citizens overall appear
more worried now about making ends meet than they were before the recession. Wales is
relatively worse off than the rest, with more than half (52 per cent) now focusing on the basic
essentials, compared with just 30 per cent for whom this was the top priority before the crisis.
By comparison, less than half the respondents from Scotland (43 per cent), where university
tuition and prescriptions are still fully subsidised by the government, consider basic essentials
as their main financial consideration. Nonetheless, this figure represents a marked increase
from the pre-recession concerns expressed by Scottish citizens when only 34 per cent say they
felt the need to focus on this particular area.
Bills are rising, income is falling, and the
need to pay for the “bare essentials”
is dominating the financial strategies
of millions across Britain.
One group of survey respondents is faring better than the others: Less than a quarter (24 per
cent) of those earning more than £100,000 a year say they are focused on the basic essentials.
In fact, 52 per cent of this group—which earns considerably more than those earning the full-time
national average annual salary of £26,200—cite investing as their main financial consideration,
compared with just 29 per cent who considered investing a priority before the crisis. In every
other income group, either the same number of or fewer respondents treated investing as a
priority after the crisis compared to before it.
There are other reasons why the higher-income group may be benefiting—albeit slightly—
from the current economic situation. In general terms, this group tends to have the largest
mortgages, which means that the historic drop in interest rates in recent years may be responsible for freeing up additional income. This may also help to explain why only 19 per cent of
those earning more than £100,000 a year now consider “paying off debt” as a priority, compared to 33 per cent before the crisis.
Less Money, More Scrutiny
Clearly, when money is tight, individuals tend to feel more anxious about managing their
finances. At the same time, continual media speculation about an imminent financial meltdown combined with sharp questions over where the economy is headed next leaves many
people wondering whether unemployment will continue to rise or benefits will be scrapped
or reduced.
Not surprisingly, in recent years Britons across the board have become far more attentive
when it comes to monitoring their bank accounts. In fact, nearly three-quarters (71 per cent)
Britons Continue To Feel the Squeeze
5
of respondents report that they now look at their current account at least once a week,
compared with just 54 per cent before the financial crisis (see figure 4).
This rise was most noticeable in the 18–24 group, with 70 per cent of those in this group saying
they now monitor their current account at least once a week, compared with just 45 per cent
previously. The increased frequency with which savings accounts are checked follows a similar
pattern, with 21 per cent reviewing their savings weekly, compared with just 13 per cent before
the crisis.
Our research does highlight one key difference in terms of how Britons are monitoring their
current accounts versus their savings accounts: While 71 per cent report reviewing their current
account each week, this number drops to just 21 per cent for savings accounts. The obvious
explanation is that Britons simply have fewer savings than they used to, a conclusion confirmed
by recent statistics released by the Department of Work and Pensions, which reveals that as
many as 30 per cent of British households currently do not have any savings at all.
For those who do save, figures released by ING Direct reveal that, as a result of the high cost
of living and recent job cuts, average savings in the United Kingdom now stand at just £1,783,
representing a 12 per cent decline in two years. The research also reveals that 41 per cent of U.K.
citizens are relying on their savings to help pay for everyday basics, such as groceries, utilities,
and fuel. In addition, because people are concerned about their job security and fear they may
be left unemployed and saddled with debt they cannot afford, many are using their savings to
reduce their loans.
Figure 4
Britons check their current account more often since the financial crisis
Respondents (%)
Pre-crisis
Post-crisis
80%
71
How often do you monitor
your current account?
60%
54
40%
31
22
20%
14
6
1
0%
Daily or weekly
Every two weeks
or quarterly
1
Half-yearly or
more than yearly
Never, can’t recall,
not applicable
Source: A.T. Kearney analysis
Britons Continue To Feel the Squeeze
6
It is perhaps for all of these reasons that most people seem determined to monitor their
finances more closely now. This is especially true for those age 55 and older, with about 71 per
cent in this group reviewing their current account at least once a week, compared with just 56
per cent before the crisis.
Although financial concerns now affect all age groups, they clearly represent a serious problem
for older people in particular. Age UK reports that 4.5 million people 60 years of age or older can
only just afford the basics, and that more than half (55 per cent) of those age 60 or older are
finding it harder to manage their regular outgoings compared to this time last year.
An ICM poll carried out to coincide with Age UK’s report, Living on a Low Income in Later Life,
reinforces this finding, revealing that nearly 10 per cent of those age 60 or older are “finding it
quite difficult” or are “really struggling” to manage on their present incomes.
More Debt, Less Scrutiny
Despite the pressures of the financial crisis, our research shows that people are only slightly
more likely to check on their debt levels, including mortgages, unsecured loans, and credit
cards, than they were before the economy began to falter. Just 25 per cent now check these
balances each quarter, compared with 23 per cent of those reporting this same frequency
before the financial crisis. By comparison, nearly half of all respondents claim that they
never check these balances, or cannot recall checking them, and only 15 per cent say that
they review their debts on a daily or weekly basis (see figure 5). Twenty-five to 34 year olds
are the most vigilant age group with 23 per cent checking their debt levels either daily
or weekly.
Figure 5
Despite the pressures of the financial crisis, Britons are only slightly more likely
to check their debt levels
Respondents (%)
Pre-crisis
Post-crisis
60%
How often do you monitor
your debt levels?
49
44
40%
23
20%
12
0%
25
16
15
Daily or weekly
Every two weeks
or quarterly
16
Half-yearly or
more than yearly
Never, can’t recall,
not applicable
Source: A.T. Kearney analysis
Britons Continue To Feel the Squeeze
7
People in the 18–24 age group follow this general trend very closely, with only 16 per cent
reporting that they look at these figures weekly. One might assume that this age group has the
lowest level of debt to worry about, but it is worth noting that it is likely to face “deferred debt”
later on, since student loans on courses beginning after September 2012 will need to be repaid
as soon as an individual begins making more than £21,000 a year. In nearly all the age groups,
the number of respondents who do not check debt at all (or for whom it does not apply) is
greater than for those who check weekly, quarterly, or more than yearly (see figure 6).
Whether our study participants choose to check their debt levels regularly or not, Britons in
general still have problems with debt. The Aviva Family Finances Report, published in January
2012, finds that the typical U.K. family owes £7,944 in unsecured debt (credit cards, personal
loans, hire purchase, overdrafts, store cards, and so on), which they repay on a monthly basis.
This is up from £5,360 in January 2011 and now stands at 31 per cent of the typical annual household income. The report also reveals that credit card debt is the most significant source of
unsecured debt, with an average of £2,314 owed by U.K. families, followed by personal loans
of £1,739 and overdrafts of £775.
Direct Channels are Changing Habits
Direct channels (telephone, the Internet, and smartphones) are now outstripping bank
branches, the mail service, and independent financial advisors (IFAs) when it comes to
managing personal finances. Sixty-two per cent prefer to use these direct channels to keep
Figure 6
Almost two-thirds of 18–24 year olds never check, or can’t recall checking, their debt levels
Respondents (% by age group)
Pre-crisis
Post-crisis
80%
73
60%
60
55
55
43
37
40%
34
30
20%
0%
18–24
25–34
35–54
55+
Source: A.T. Kearney analysis
Britons Continue To Feel the Squeeze
8
Figure 7
The majority of Britons use direct channels—telephone, Internet, smartphone—
to manage their personal finances
Respondents (%)
Pre-crisis
Post-crisis
80%
62
60%
48
40%
24
20%
19
15
17
3
0%
Visiting local
branch
Via mail
Direct channels
3
Using an
independent
financial advisor
5
4
None or
can’t recall
Source: A.T. Kearney analysis
track of their financial situations, compared with just 48 per cent who say they felt this way
before the recession took hold (see figure 7). Londoners are the most likely to use direct
channels in this way, with more than two-thirds (67 per cent) choosing this option.
The increased use of direct channels is reflected among all income groups in our study, and all
income groups, in fact, show a marked preference for direct channels over visiting a local
branch or working with an independent financial advisor. Postal services will feel the draught
too. In all income groups under £100,000, whereas between 22 and 24 per cent of respondents
managed their personal finances by post before the crisis, that number has now dropped to 15
to 16 per cent. Even within the group that uses direct channels the least, the percentage has
risen from 48 per cent pre-crisis to 60 per cent (see figure 8 on page 10).
This shift should not be surprising, and may or may not have anything to do with the financial
crisis. After all, Internet connections are now ubiquitous, both at home and at work, and the
level of smartphone penetration in the United Kingdom has now reached 40 per cent. As a
result, this way of communicating simply fits well with most people’s daily lives.
The growing preference for direct channels is evident across many different sectors including,
for example, insurance. A recent Datamonitor survey reveals that nearly 90 per cent of those
questioned arranged their motor insurance policies over the telephone or Internet, and that all
socioeconomic groups now prefer to use the Internet to purchase a motor insurance policy.
Britons Continue To Feel the Squeeze
9
Figure 8
Britons at all salary levels are using direct channels—telephone, Internet, and
smartphones—more often to perform bank transactions
Respondents (%)
Pre-crisis
Post-crisis
77
80%
69
67
65
64
60
60%
48
59
50
55
53
52
40%
20%
0%
Less than 15,000
Source: A.T. Kearney analysis
15,000–24,999
25,000–39,999
40,000–59,999
60,000–99,999
100,000+
Annual salary (£)
These findings are sure to raise a number of questions for the financial services sector. For
example, can banks afford to keep branches open as the number of visitors continues to drop?
To date, the fear of a public backlash may have deterred banks from closing branches, but
changes in this area may soon be unavoidable given the need for banks to reduce costs and
increase profitability.
These findings highlight similar concerns for the IFA market, which is already bracing for greater
transparency over pricing once the Retail Distribution Review comes into effect at the end of
2012. Among respondents earning more than £100,000 a year, the number of those using IFAs
has already dropped by nearly half in the wake of the financial crisis, with 22 per cent using IFAs
before the crisis compared to just 13 per cent today (even though, as discussed earlier, more
than half of these same people cite investing as their current primary financial consideration).
These figures are likely to cause concern for IFAs, especially as more than three quarters (77 per
cent) of respondents within this income bracket or above report that direct channels are now
their preferred means for managing their finances compared with just 59 per cent before the
crisis. Both of these figures contrast sharply with the 13 per cent of high earners who prefer to
work with IFAs for their investment activity.
This shift may reflect a wider trend toward “self-directed” investing, whereby savvy investors
use the Internet, books, and the business press as a basis for their financial decisions, rather
Britons Continue To Feel the Squeeze 10
than working with an IFA. This new approach to financial education, combined with the rising
popularity of direct channels for investing, will almost certainly require IFAs to review how they
market and deliver their services.
Crisis Contributes to Personal Pension Neglect
Our findings relating to personal pensions are arguably the most startling. Nearly two-thirds (64
per cent) of respondents across all regions in Britain say they have either stopped contributing
to a personal pension plan since the financial crisis or they do not have one, or do not know if
they have a pension plan (see figure 9). These figures are much higher than those released at
the end of 2011 by the Department for Work and Pensions, which revealed that only 38 per cent
of U.K. adults contributed to a pension arrangement.
Nearly two-thirds of Britons have either
stopped contributing to a personal
pension plan, do not have one, or don’t
know if they have one.
This situation represents a growing problem for women in particular, with 49 per cent of women
claiming they are unsure whether they have any pension savings at all, and 19 per cent saying
they have either reduced or stopped their contributions since the onset of the financial crisis
Figure 9
One-fifth of Britons have stopped contributing to their pensions since the crisis began
Respondents (%)
How have your pension contributions changed since the financial crisis?
Stopped contributing
Started contributing
20
Increased contribution
4
44
8
2
Didn’t change contribution
Reduced contribution
Don’t know or not applicable
22
Source: A.T. Kearney analysis
Britons Continue To Feel the Squeeze 11
Figure 10
More men than women stopped contributing to their pensions (23% versus 18%) and
increased their contributions (10% versus 5%)
Respondents (%)
How have your pension contributions changed since the financial crisis?
Male
Female
Stopped contributing
18
23
Started contributing
Increased contribution
4
39
4
5
49
Reduced contribution
Don’t know or not applicable
10
2
Didn’t change contribution
23
22
1
Source: A.T. Kearney analysis
(see figure 10). Adults between ages 18 and 24 are even less well prepared, with 76 per cent
stating that they do not currently have any pension arrangements in place. It is this same group
that will soon be tasked with finding (and keeping) a new job, paying back deferred student
loans, and managing unsecured debt in the form of credit cards, all of which will make it more
difficult to pay into a pension plan in the coming years.
Britain’s lowest earners were the least likely to have robust pension arrangements in place.
Nearly 90 per cent of survey respondents earning between £15,000 to £25,000 a year either
don’t have a pension or don’t know if they have one, or have reduced, stopped, or maintained the same contributions to a pension arrangement, since the financial crisis took hold.
Surprisingly, more than a quarter (28 per cent) of people on a salary of £25,000 to £40,000 a
year are unsure about whether they have any pension arrangements in place at all (see figure 11
on page 13).
Nor is this problem confined to the lower and middle range of the salary bracket. Even among
those earning £100,000 a year or more, 29 per cent do not know whether they are still contributing to their pension or if they have a pension plan at all. In addition, despite continuing to
invest post-crisis, nearly half the respondents in the £100,000 or more category have
completely stopped (rather than reduced) their contributions to their pensions.
This change could be due to recent government tax reforms that cap the annual allowance for
pensions at £50,000 for the 2011–2012 tax year. As a result, many people, in particular higher
earners, may be looking to invest in other areas that offer fewer restrictions, such as the buy-tolet market, which grew by 22 per cent between 2010 and 2011, according to recent data from the
Council of Mortgage Lenders.
Britons Continue To Feel the Squeeze 12
Figure 11
Pension savings changed based on annual income, with 47% of higher income earners
stopping their contributions altogether
Respondents (% by annual salary, £)
How have your pension contributions changed since the financial crisis?
Less than 15,000
15,000–24,999
Stopped contributing
Started contributing
22
23
Increased contribution
38
Didn’t change contribution
4
2
2
61
4
11
2
1
Reduced contribution
Don’t know or not applicable
30
40,000–59,999
25,000–39,999
2
19
7
16
28
7
8
1
44
14
24
30
100,000+
60,000–99,999
11
13
18
2
29
47
27
9
29
12
2
Note: The £100,000+ chart totals 99 per cent due to rounding.
Source: A.T. Kearney analysis
Britons Continue To Feel the Squeeze 13
Even so, set against a backdrop of shrinking company pension plans and the reduced buying
power of state pension plans in the future, these results are especially alarming. Already, the
Association of Consulting Actuaries’ 2011 Pension Trends Survey has revealed that 21 per cent of
U.K. employers with defined benefit liabilities have now closed their defined benefit programs
to future accrual, a sizeable jump from 7 per cent in 2010. Defined benefit programs are
normally arranged so that the benefit on retirement is determined by a set formula, rather than
depending on investment returns. At the same time, the National Association of Pension Funds
(NAPF) recently reported that the number of people actively saving in company pension
programs in the private sector has almost halved since 1991.
For the government, this situation is akin to a ticking time bomb. Incentives need to be put into
place to make saving as easy and early as possible. At the same time, private sector companies
will need to develop pension products that appeal to consumers that have become wary of
investing their hard-earned money after years of volatile stock markets, investment scandals,
and high-profile failures of industry stalwarts such as Equitable Life.
For the government, the situation is akin
to a ticking time bomb. Incentives need
to be put into place to make saving as easy
as possible.
The introduction of the government’s auto-enrolment pension plan later this year will be an
important step forward. It will ensure that, for the first time, people have a pension that comes
with their job and will receive employer contributions to that pension. Even so, between five and
nine million people, a third of the workforce, could still fall through the cracks in the system,
leaving these “missing millions” to face a bleak old age, according to the Workplace Retirement
Income Commission (WRIC).
Reaction to Recession Raises Key Question
Our research makes one thing very clear: People in Britain are feeling the pinch financially. Bills
are rising, income is falling, and paying for the bare essentials is now dominating the financial
strategies of millions of people across Britain. As a result, no matter how attractive any government tax breaks or investment plans may be, the majority of Britons are more focused on their
ability to pay the rent or mortgage each month.
This anxiety is manifesting in a number of different ways. For a start, Britons across the board
are making use of direct channels to monitor their current and savings accounts much more
frequently than they were doing pre-crisis, and yet they seem less willing to review their debt as
regularly, save for the future, or pay into private pensions for their long-term security. These
actions, often described as “recession behaviour”, typically occur when a population feels an
urgent need to tighten its belt.
Britons Continue To Feel the Squeeze 14
Is this behaviour understandable, given the current state of the British economy? Certainly. And
yet it also raises a key question for the government, financial institutions, and consumers: How
does Britain address the growing level of distress among its ordinary citizens and determine the
steps that will be needed to ensure a brighter future? Certainly, the first step should be for
government to come up with appealing products that encourage citizens to plan early for later
life and offer them simple and safe ways to do so. IFAs have an important role to play in helping
people make the correct investment decisions in tumultuous times, and they need to pick up
the ball again and devise strategies for reconnecting with consumers. Finally, but importantly,
private sector companies need to address the serious problem of declining interest in pension
plans. Those that develop pension products that both meet the needs of and overcome the
understandable fears of consumers that have lost confidence in the investment market will
themselves be well placed for a prosperous future.
Authors
Neil Dennington, principal, London
[email protected]
Ettore Pastore, partner, Milan
[email protected]
The authors would like to thank Ronnie Ahluwalia and James Le Chevalier for their valuable contribution
to the development of this paper.
Britons Continue To Feel the Squeeze 15
A.T. Kearney is a global team of forward-thinking, collaborative partners that delivers
immediate, meaningful results and long-term transformative advantage to clients.
Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s
leading organizations across all major industries and sectors. A.T. Kearney’s offices
are located in major business centers in 39 countries.
Americas
Atlanta
Calgary
Chicago
Dallas
Detroit
Houston
Mexico City
New York
San Francisco
São Paulo
Toronto
Washington, D.C.
Europe
Amsterdam
Berlin
Brussels
Bucharest
Budapest
Copenhagen
Düsseldorf
Frankfurt
Helsinki
Istanbul
Kiev
Lisbon
Ljubljana
London
Madrid
Milan
Moscow
Munich
Oslo
Paris
Prague
Rome
Stockholm
Stuttgart
Vienna
Warsaw
Zurich
Asia Pacific
Bangkok
Beijing
Hong Kong
Jakarta
Kuala Lumpur
Melbourne
Mumbai
New Delhi
Seoul
Shanghai
Singapore
Sydney
Tokyo
Middle East
and Africa
Abu Dhabi
Dubai
Johannesburg
Manama
Riyadh
For more information, permission to reprint or translate this work, and all other correspondence,
please email: [email protected].
A.T. Kearney Korea LLC is a separate and
independent legal entity operating under
the A.T. Kearney name in Korea.
© 2012, A.T. Kearney, Inc. All rights reserved.
The signature of our namesake and founder, Andrew Thomas Kearney, on the cover of this
document represents our pledge to live the values he instilled in our firm and uphold his
commitment to ensuring “essential rightness” in all that we do.