Brits lack redundancy safety net

By UK CreditCards.com

A worrying proportion of Britons would not be able to stay out of debt if they lost their job, new research has found.

A November 2012 survey by HSBC has shed light on the low levels of savings held by millions of Brits, with one in three having less than £250 set aside for a rainy day. The finding indicates that many would have to resort to short-term borrowing, such as credit cards or current account overdrafts, in the event of redundancy.

31% of households have less than £250 in savings
Britons are advised to keep the equivalent of three months' worth of take-home pay in a savings account to tide them over in a crisis. This means that a typical household should have £5,756.20 set aside, based on the monthly take-home pay of £1,919 reported by the average participant in HSBC's survey.safety-net

However, the poll revealed that many households have nowhere near this amount in savings. In fact, 19% admitted to having nothing set aside, while an additional 12% said they had some set aside -- but that the amount was less than £250. This means that these individuals, the equivalent of 8 million UK households, would last just five days or less -- assuming average monthly household outgoings of £1,669 -- before resorting to handouts, credit cards or benefits.

Position of young people is particularly precarious
HSBC's research indicates that young people are in a particularly worrying position with regard to their finances. Almost half (46%) of 16- to 24-year-olds have less than £250 in savings, compared with 31% of 45- to 54-year-olds and just 21% of over-55s. The survey also revealed that women are less prepared for a financial emergency than men, with 21% of female respondents having no savings, along with 16% of males.

Many would turn to credit cards
When asked how they would pay for essentials in the event of redundancy, 40% of respondents unsurprisingly said they would use their savings. However, the picture is less clear-cut for those who have been unable to build up a financial buffer. Three in 10 people indicated that they would apply for benefits to cover their monthly outgoings, and 14% revealed that they had income protection insurance. A further 13% admitted they would turn to family members or their partner to help them through their job crisis, while more than one in 10 would rely on a credit card, personal loan or current account overdraft.

While a credit card can indeed be a useful borrowing method in the short term, it is inadvisable to use one in the event of job loss, as it could be some time before a person can repay the debt. Bruno Genovese, head of savings at HSBC, urges families to set aside a "realistic sum of money" for use in emergencies.

"By putting away a small amount each month, Britons can help themselves build up an emergency savings pot as provision for any eventuality without having to rely on a solution that could push them into the red," he said in a statement.

See related: Many UK families dangerously close to financial ruin, Are you suffering from 'banxiety'?

Published: 16 November 2012