The Nation’s Nest Egg

• Context
• The study
• Key findings
• Points to consider

Context

Before Covid-19, the UK’s household savings ratio was one of the lowest in Europe - with other nations saving two to three times’ more. It is estimated that the nation’s nest egg has a shortfall of about £371 billion, resulting in lots of people feeling financially uncomfortable. This could impact mental health and wellbeing, as well as consumer confidence as the UK works towards economic recovery.

In this insight report, Yorkshire Building Society (YBS) worked with the Centre for Economics and Business Research (Cebr) to understand how the pandemic has affected the nation’s ‘nest egg score’, in terms of spending, saving and planning for the future. The research looked at people’s financial safety net – how well people across different regions and demographics can handle financial shocks like losing a job – as well as how likely they are to happen.

The study

YBS commissioned Cebr to study national economic data and survey 2,000 people to create the ‘nest egg score’. The nest egg score assesses people’s financial safety nets across the nation and how the pandemic has impacted these.

The research looked at people from different places and backgrounds, as well as asking how money affects their choices. To create the nest egg score, the researchers looked at how well the population can handle financial shocks - like losing a job - as well as how likely they are to happen. This was scored out of 100 points by rating four areas: shock resilience, the probability of an income shock, financial health, and planning for difficulty. The higher the overall nest egg score, the stronger the safety net.

When it came to assessing the four areas, a number of different statistics were used, such as annual household income, house price affordability, household savings rates, the number of private sector jobs versus public sector jobs. In this way, a true picture could be gained of how people’s nest egg scores, across the UK, will have changed over the last few years.

Key findings

• It is estimated that the UK has a £371 billion savings shortfall – the difference between people’s current savings and the amount they’d need to feel like they have a strong financial safety net. However, a large increase in saving has meant the collective nest egg has grown during the pandemic and the UK’s overall financial nest egg score has improved from 44 out of 100 to 57.
• Compared to the past five years, the UK population has faced very different financial outcomes than in 2020. In some regions financial security improved significantly, while in other regions people struggled. For instance, Londoners – who had a weakening nest egg score from 2014-19 – improved most during the pandemic (+33 points), while people in Sheffield saw years of progress stalled (-25 points).
• Ranking people’s nest egg score by the cities they live in, Edinburgh residents were most financially secure in 2020 (64), while people in Milton Keynes scored lowest (44).
• When ranking regions across the UK for the average household nest egg score, the East of England emerges as the most financially secure area during 2020 (61). Meanwhile, the North East was the least financially secure region, with a nest egg score of just 40.
• Whilst the pandemic raised the chance of losing jobs or income across all groups measured, those most affected were young people, single parents and households in geographic regions which were already struggling.
• The pandemic and its impacts have changed how we think about money. A third of adults (35%) say the pandemic has made them more likely to save; this figure increases to around half (46%) for 18-34-year-olds, which suggests the pandemic has focused the younger generation on building a nest egg to strengthen their safety net.
• Financial security is good for people’s health too. A third of men (32%) and two-fifths of women (41%) said greater financial security would make them feel less anxious or depressed.
• To become more financially secure, most people would like more money in cash savings (37%), followed by reducing their debt (25%) or owning a property (23%).

Points to consider

• Methodological strengths/weaknesses: Whilst there is limited detail on the methodology used in this report, we can be confident in the robustness of the findings due to the large sample size achieved for the quantitative arm of the research (n=2,000) and the quality of the UK datasets (ONS, Bank of England, UK Finance, amongst others) used to support these findings. The study also provides useful trend data for future analyses.
• Generalisability/ transferability: This report (presuming the above assumption is correct) uses a robust methodology. Therefore, these findings can be applied with a degree of confidence universally within the UK.
• Relevance: This report is relevant to all stakeholders, academics and policymakers who are interested in segmenting the UK population according to their financial behaviour in terms of savings, and how this behaviour has changed over the course of the pandemic.