11 September 2018
Financial resilience to income shocks
The August Bank of England interest rate rise was a shot across the bow – a reminder that ultra-low rates are not the norm. While the move is unlikely to be the start of a huge or rapid rise in the cost of borrowing, it should prompt us to give thought to our financial resilience to income shock.
Could your clients cope with a reduction in income due to job loss or reduced hours, ill health, disability or caring responsibilities? We can take the opportunity to check their ability to stay on top of their money, commitments and liabilities if things became more expensive. In addition, we need to factor in the increased cost of having an illness or disability. Research from Scope and Macmillan inform us that disability, and conditions such as cancer, are likely to result in increased living costs, compounding the impact of that income shock.
Four factors may shape how well families weather absence due to illness in the future:
- Household resources: rising housing costs, ‘generation rent’, student loans, auto-enrolment into pensions and reliance on the ‘Bank of Mum & Dad’ mean household budgets are likely to remain under pressure for most families.
- Employment patterns: while technological advances (for example, automated services replacing humans) can mean greater uncertainty about the distribution of work and earnings, technology can also help more people to work when unwell. Employer and social attitudes to sickness and work will be crucial.
- Health and Social Care Services: how far will health and care services develop to support people getting back to work? And how far will individuals proactively optimise their health? There is a long way to go.
- Financial Planning and Financial Services: whether or not consumers can access support, information, guidance and advice to improve their financial planning.
The Building Resilient Households Group are seeking to improve households’ financial resilience to income shocks, see their manifesto for change – The future of financial provision for those too ill to work.
Let’s keep on talking to clients about their financial resilience and ensure they are prepared for the unexpected.