Brits cautious on consumer spending post-restrictions

The Covid-19 pandemic and its restrictions have brought mixed fortunes to the UK population. Some people have managed to save money by working from home and not having as many opportunities to spend, while others have lost their jobs and had to get by on a smaller income.

With the final lifting of restrictions on the horizon, we look at people’s attitudes to spending and saving, as well as their views on the wider economic recovery.

As you might expect, 42% of people intend to increase their level of lockdown spending once restrictions end, but our survey suggests that they won’t be rushing out to splurge what they may have saved during lockdown.

Instead, the results point to a more limited increase in spending, as people remain cautious about the future, both for them personally and for the economy as a whole.

This is particularly true for those who have struggled financially throughout the pandemic. Even when restrictions lift, people who have had to deal with job losses and reduced incomes will continue to face numerous challenges and difficulties.

One of the most worrying figures from our survey was that just 50% of those surveyed were confident about being able to cover their basic living expenses for the rest of year. This highlights the long-term impact the pandemic has had on many people’s finances and mindsets, especially those on lower incomes.

But even those who have managed to save during the pandemic are seeming to favour caution and security over excessive spending, with 28% planning to put their extra money towards an emergency fund.

Key findings

• 42% of people will increase their level of spending once all restrictions are lifted, while 43% of people won’t change their spending from lockdown levels.
• 28% have put their savings towards an emergency fund.
• Only 50% are confident about being able to cover their basic living expenses until the end of 2021, and only 46% are confident that they will have a regular income.
• 26% of people believe that the economy and consumer spending will recover by the end of 2021.
• 40% of people think they have a responsibility to shop more at local businesses and less at large outlets to stimulate the local economy.

Spending habits

Lockdowns and the subsequent restrictions have undoubtedly had an impact on our spending.

With retail, hospitality and leisure businesses lying closed for months and with limited options to travel, a significant number of people have managed to save money since March 2020, simply because they haven’t had as many opportunities to spend.

When you consider that around 37% of working adults worked from home at some point in 2020 (up from 27% in 2019), according to the ONS, many people will have also managed to save money on public transport and fuel by not commuting to work every day.

But as restrictions lift, how will our spending habits change?

Unsurprisingly, 42% of those surveyed think their spending will increase, while only 8% of those surveyed think it will decrease.

However, only 8% said their spending will significantly increase. This suggests that, while many people will take advantage of the greater opportunities to spend, most will only increase their spending in a relatively careful and restrained way, rather than spending excessively to make up for the months that things were closed.

Also, 43% think their expenditure will remain largely the same, indicating that not everybody will be going on a huge shopping spree to get rid of any savings they may have accumulated over the previous year.

This may be because people prefer to put their savings towards something else and want to continue adding to their savings once restrictions end, or because they didn’t actually reduce their spending significantly during lockdown.

What are people planning to do with their savings?

We have already seen that most people are unlikely to seriously increase their spending and spend their savings as restrictions end. Instead, our survey suggests that those who have managed to save will use this extra money in ways that will help to improve their financial position.

For example, 28% of those surveyed will use their savings as an emergency fund.

This perhaps reflects the continued uncertainty caused by the pandemic, with people recognising the vulnerability of their income and financial stability. They seem to want to make sure they are prepared for whatever financial shocks may happen, be it new restrictions, job loss, an unexpected major expense, or another devastating and unpredictable event like the coronavirus pandemic.

People have also taken the opportunity to reduce their overall debt using the money they’ve saved, with 12% overpaying their mortgage and 15% paying off other debts.

We already saw evidence of this in the first lockdown, with the Bank of England reporting net repayments of consumer credit (such as credit cards and loans) of £16.6 billion over the course of 2020, the largest amount on record.

Making overpayments on your mortgage and other forms of credit will help you to clear your debt quicker and reduce the total amount of interest you pay, so it is a useful way for people to use their unexpected extra savings to their advantage. Always check your individual agreement before making overpayments as it’s common for charges to be involved when overpaying above a certain amount.

Individuals also seem to have been looking for ways to maximise their money. A total of 17% said they plan to invest their savings in a Stocks and Shares ISA for example, a decision which could be partly prompted by the record low interest rates currently offered by savings accounts and standard Cash ISAs.

Even though investment comes with risk, people that have already built up an emergency fund and have surplus money that they can afford to invest in alternative options, may do so in the hope that they can get a higher return than that offered by a savings account.

Meanwhile, 12% plan to put money towards a new car and 10% intend to use their savings towards a mortgage deposit. Again, this underlines the idea that people are wanting to use their savings on things that will bring long-term benefits rather than on immediate treats and luxuries.

The savings habit looks set to continue even after restrictions end, as 39% are confident that they will add to their savings through 2021 and 41% think that the amount of money in their savings account(s) will stay the same or grow.

However, not everyone has been in such a good position, as 25% of those surveyed said they hadn’t been able to save at all during 2020/early 2021.

Denise Ko Genovese, Senior Personal Finance Editor at NerdWallet comments: “With the financial shock of the pandemic, many people have seen and experienced how precarious the economy and their personal finances can be. Around half of those surveyed weren’t confident about being able to pay their basic living costs for the rest of the year, highlighting that, while some people managed to save, others have not been so fortunate.

“Because of this, it’s not surprising that even those who have managed to save are being wary about how much they spend. By using their savings to build an emergency fund or pay off debts, they will be in a better position to weather any future financial storms they may encounter.”

Divided experiences

It is typically higher-income households with more disposable income that have managed to save money during the pandemic.

Research from the Bank of England in 2020 found that 42% of high-income employed households increased savings, compared to 22% of low-income employed households.

Those on lower incomes are also more likely to have suffered a reduced income, compared to those in higher-earning groups. For example, 43.8% of those in the lowest income quintile were on a reduced income in 2020, compared to around 30% in the top two income quintiles.

Many lower-income families spend a larger proportion of their income on essentials, so they won’t have seen their spending drop as much, if at all, since March 2020. This means many won’t have been able to significantly increase their savings.

In fact, rather than saving more money, the ONS found that nearly 9 million people have had to borrow more and take on more debt during 2020.

Our survey results underline this split between those who have saved money and those who have struggled, and show that the difficulties people have experienced won’t disappear once restrictions are lifted.

Just 50% of those surveyed are confident that they will be able to afford their basic living costs until the end of 2021.

Only 46% are confident that they will have a regular income through to the end of 2021 and 47% believe they will have enough money to sustain their current lifestyle.

Furthermore, 8% think that they will need to borrow money through a loan, credit card or overdraft facility by the end of 2021.

This shows that a high proportion of people feel uncertain about the future and their ability to meet their immediate living costs. The end of restrictions may not bring an end to their challenges, especially as employment support schemes like furlough and the SEISS (self employment income support scheme), and other measures like the ban on evictions and payment holidays come to an end.

If you are struggling with problem debt, you can get debt help and advice from charities like StepChange or National Debtline. They will be able to help you find a solution to your debt and work out a plan of action for the future.

Looking forward

Perhaps understandably, people have some doubts about how well the economy will recover throughout the rest of 2021 and beyond.

Just 26% of those asked believed that the economy will recover from the pandemic’s damage by the end of 2021, and that consumer spending would be at least as strong as before the pandemic. This is despite recent reports displaying encouraging signs of recovery, including research by Barclays that showed consumer spending grew by 7.6% in May 2021, compared to the same month in 2019.

The survey responses suggest that most people are expecting economic recovery to be a long, slow process, which reflects some of the cautious attitudes many have with regards to their own future spending and saving plans.

But, despite the relative pessimism towards the economy’s future, only 15% of those surveyed believed they had a responsibility to spend any savings they had built up during lockdown to stimulate the economy.

This could indicate that people are focused first and foremost on making sure their individual financial position is as strong as it can be, before trying to help the wider economy.

However, many do believe they have some form of responsibility to support the economy, particularly local businesses.

A total of 40% think they should shop more at local businesses and less at larger outlets, and 39% think they should spend money at local restaurants, bars and pubs.

What’s more, 29% also think they should spend their money at businesses that they personally know have been hit the hardest by the pandemic.

This shows a sizeable proportion of people plan to spend their money more mindfully, and would prefer their cash to go to smaller businesses where it would make more of a difference.

Some retail giants, like Amazon, have profited during 2020, but many small and local businesses, especially those in affected sectors like hospitality, have suffered. Several of these businesses have been forced to shut for long periods and adapt to changing restrictions, so it’s unsurprising that there is a relatively widespread feeling that people should support them where possible.

“Our research suggests that people are not convinced about the economy’s quick recovery, perhaps reflecting a lack of confidence that things will soon ‘get back to normal’. With the date to completely lift all restrictions pushed back to 19 July, their concerns are understandable,” Ko Genovese says.

She adds: “However, it is encouraging that a significant number feel some kind of responsibility to support the economy, and local businesses in particular. With 42% of people planning to increase their spending once restrictions are lifted, this will hopefully help those individuals and businesses that have struggled and adapted to the ever-changing guidance during the pandemic to get back on their feet.”

Improving money management

Some people have managed to use the past year to get to grips with their finances.

A total of 17% believe they are more financially literate than before the pandemic, and 19% think that lockdown has helped to teach them about budgeting and organising their finances.

Whether it’s paying off debts, contributing more regularly to their savings, or looking for ways they can cut spending, it’s encouraging that some people have been able to improve their money management skills.

If you are wondering what you could do to improve your finances, here are some tips:

• Create a budget. Figure out your regular expenses and get a better idea of where your money is going each month.
• Build up an emergency fund. This will give you a buffer if you lose your job or face any major expenses in the future.
• Make overpayments on any credit cards, overdrafts, or loans. Especially if interest rates on savings accounts are low, you may be better off paying off any higher-interest credit you have as the interest you accumulate on these debts is likely to be more than you could earn from interest in a savings account.
• Explore and compare your savings options. You may want to look at fixed rate savings accounts, Lifetime ISAs, or even consider a Stocks and Shares ISA or other investment options. Make sure you are aware of the terms of each account and, if you choose an investment option, that you are aware of the risk involved.
• Add to your pension. If you’re not already contributing to a workplace pension, then you are missing out on employer contributions and tax relief.

Disclaimer:

The research was carried out in May and June 2021 for NerdWallet by market research company OnePoll. Ten questions were posed to a sample of 2,000 nationally representative UK adults about their spending habits, and how they felt about both the country’s and their own finances going forward.

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