Over 20 million households have been eating into their savings for the past year as the recession bites, with the poorest hardest hit, according to Axa.
Only the wealthiest fifth of the country - those bringing in over £70,000 a year - have avoided spending beyond their means, according to Axa’s analysis of ONS savings ratio figures.
It suggests those whose earnings are in the lowest 20% - typically less than 12,420 a year after taxes and benefit contributions - are hardest hit. Families usually rely on benefits to supplement their annual income and had a savings ratio of -7.4% in Q1 2008 and of -5.9% in Q2 this year, says Axa.
Households in the second wealthiest income bracket (£35,000 to £52,000) also failed to generate a positive savings ratio in 2008. While the ratio was 0% for Q2 2008, it was -1.6% in Q1 this year.
Axa says the trend shows that the lower the income the more negative the savings ratio. Households earning between £12,420 and £21,735 after taxes had a ratio of -4.8% in Q1 2008 and -3.3% in Q2 2008, while households earning between £21,735 and £35,190 had a ratio of -3.6% in Q1 2008 and -2.1% in Q2 this year.
The decline in household wealth over the first six months of the year coincides with a hike in fuel costs, utility bills and food prices, impacting on disposable income, Axa says.
Steve Folkard, head of pensions and savings policy, says many people feel helpless worrying about their money while the cost of living is increasing.
"If people feel there's nothing they can do this will lead to disengagement and apathy, which can lead to financial disaster," he says.
He adds the reality of the economic downturn is rippling down to a very local level: "If only the richest members of society are managing to cope with their spending then we really need to consider how to improve the day-to-day financial health of British households.”
Folkard says people need tangible solutions to help keep their finances intact and overcome financial security anxiety in the aftermath of the credit crunch.
He considers people need to get into the habit of regularly reviewing their financial situation. Axa is launching My Budget Day on 20 November, encouraging people to do just this. Savers can access: www.axa.co.uk/mybudgetday for more information.IFAonline
Know suitability requirements
As head of distribution
‘Misconduct is misconduct’
Ramifications for advice firms
Calling for new advisers to join