Cost of living triple shock shakes peoples’ financial confidence with a set of challenges not experienced in a generation

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• The proportion of people reporting they are confident in their financial decision making has dropped since 2021 with women hardest hit
• Many households have never encountered a combination of double-digit inflation, sharp interest rate rises and falling investment markets
• Standard Life provides tips to help with financial decision making and boost financial confidence amid the current crisis

Over the past 12 months a trio of financial shocks have hit UK consumers, forcing them to weigh up financial challenges not seen in a generation. New insights from Standard Life, part of Phoenix Group, reveal that these trends have had a knock-on impact on people's confidence when making financial decisions.¹

Standard Life's Retirement Voice study covering 6,000 consumers found only 59% feel confident making financial decisions now, falling from 63% in 2021. The drop in confidence levels reflects the challenges surrounding both day-to-day budgeting and long-term financial planning in the current environment.

Female confidence has been hit hardest, with 52% feeling sure of their financial decision making, down from 57% in 2021. In comparison, 67% of males currently feel assured about making financial decisions. Similarly, those who are not working or are retired are less confident than before (54%, dropping from 63%).

The triple shock

The late 1980s was the last time the country faced a comparable set of economic challenges. Interest rates rose 7% during 1988-1989 to peak at 14.88%², while CPI inflation hit 8.4% in 1991³. Today's inflation and interest rate hikes have also been accompanied by turbulent markets with the MSCI World Index down around 15% since the end of 2021⁴.

The combination of rising prices and higher borrowing costs have meant an increasing number are worried about their household budgets and the prospect of running out of money, with 58% concerned about this. Those who are especially concerned include:

• Females (65% - compared to 51% of males)
• Those who are not currently working or retired (63% - compared to 59% of workers)
• Those who have done no financial planning (62% - compared to 55% of those who have undertaken financial planning)

For those looking at the medium or long-term state of their finances, the current market instability can feel daunting. Retirement Voice found consumers, with or without investments, are feeling less optimistic about their finances than previously. In 2021, almost half (48%) felt positive, but this has now fallen to 41%.

Jenny Holt, Managing Director Customer Savings & Investments at Standard Life, commented: "The current convergence of inflation, rising interest rates and fragile markets is affecting both peoples' day-to-day budgeting as well as their long-term planning. Ultimately this is having a knock-on impact in their financial confidence and decision making with certain groups impacted more than others. Women, those who are not working or are retired, and those who have not done any financial planning are feeling least confident. The potential long-term impact on women is a concern with research from think tank Phoenix Insights highlighting the gender pay pension gap is already around 40%⁵".

UK CPI 1989-2022

UK CPI, 1989-2022. economicshelp.org, ONS data

Bank of England base rate 1975-2022

propertyinvestmentproject.co.uk

Taking control of household finances and boosting financial confidence

Jenny Holt commented: "A key first step is to set a budget and stick to it, this gives a clear picture of what you have and what you can afford. There might be an opportunity to cut back or re-prioritise spending. Secondly, especially as interest rates are forecast to continue rising, prioritise making a dent in any existing debt - you could use the budget you've created to understand how much you can afford to put towards any debts, or think about consolidating your debts to get a potentially lower interest rate. Thirdly, if you're able to save, make sure you're saving in the right place for your personal goal. For example, if you're saving for your first home, you could consider putting any savings you have into a Lifetime ISA (LISA). With a LISA, you can save up to £4,000 each tax year and get a 25% bonus from the government on top of your savings - meaning if you save £4,000 each year, you'll get an additional £1,000 on top. If your goals are longer term, a Stocks & Shares ISA or pension could make your money work harder than a cash savings account - there's a degree of investment risk, and with pensions you can't access your savings until you're at least 55, but in a cash account savings can be eroded by inflation."

 

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Notes to editors:

¹ Boxclever conducted research among 6,000 UK adults. Fieldwork was conducted 6th Sept - 16th October 2022. Data was weighted post-fieldwork to ensure the data remained nationally representative on key demographics.

References to research from last year / 2021 refers to Boxclever research conducted among 4,896 UK adults between 16th and 23rd July 2021.

² Bank of England, interest rate history - https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp

³ ONS CPI figures - https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7g7/mm23

⁴ MSCI World Index performance - https://www.cnbc.com/quotes/.WORLD

⁵ Caught in A Gap: The role of employers in enabling women to build better pensions' , Phoenix Insights

About Phoenix Insights

Phoenix Insights is a new think tank set up by Phoenix Group to transform the way society responds to the possibilities of longer lives. We will use research to lead fresh debate, prompt a national conversation, and inspire the action needed to make better longer lives a reality for all of us. The core of our work will look at financial security, work, and learning and skills, but we will also look at health and care, and homes and communities. Reimagining longer lives means making changes in all these areas. Some of our work will focus on the experiences of specific groups who face significant challenges. We also want to ensure that the ideas and solutions we advocate for contribute to a sustainable future for people and the planet. At the heart of all our work, we are committed to reducing inequalities and building a society that enables all of us, not just the fortunate few, to live better longer lives.

Phoenix Insights is led by Catherine Foot, a leading research and policy specialist in longevity and ageing who was appointed as the Director of Phoenix Insights in June 2021. Catherine has over 20 years of experience in the field. From 2015 to 2021, she was Director of Evidence at the Centre for Ageing Better. She has also held senior roles with The King's Fund and Cancer Research UK. Catherine holds degrees from University of Cambridge and University College London. The think tank is supported by an expert advisory committee including Baroness Camilla Cavendish, Rt Hon Amber Rudd, Lord Victor Adebowale, Professor Lynda Gratton, Professor Sarah Harper CBE and Baroness Ruby McGregor-Smith CBE.

About Standard Life

• Standard Life is a brand that has been trusted to look after peoples' life savings for nearly 200 years
• Today it proudly serves millions of customers who come to Standard Life directly, through advisers and through their employers' pension scheme.
• Standard Life is part of Phoenix Group, the largest long-term savings and retirement business in the UK. We're proud to be building on nearly 200 years of Standard Life heritage together
• Our products include a variety of Pensions, Bonds and Retirement options to suit people's needs, helping our customers to invest and save for their future. We're proud to offer a leading range of sustainable and responsible investment options.
• We support our customers on their journey to and through retirement with comprehensive, easy-to-understand guidance so they can invest in the right way for their needs, and plan a future they feel confident about
• The value of investments can go down as well as up and may be worth less than originally invested.