Life is often referred to as a game where people decide to either play it safe or take a chance. But, asks Kirsteen Grant, are they assessing their risk correctly?
We are living in uncertain times and consumers are more likely to review their finances regularly to try and offset the potential risks that are heightened in this climate.
Nevertheless, the trend is still to look to the short term rather than longer term. Recent research by Hannover Life Re investigated a range of day to day financial commitments to understand where consumers’ key priorities are in the current economic environment.
Running their cars and paying utility bills were the top two concerns, which is understandable with consistent price rises in both petrol and utility bills. Interestingly, across all age groups, mortgages, savings, credit cards and leisure activities were not placed as a top priority.
Recent joint research with the Protection Review found the value of savings was of concern to 50%, however, it remained low on their list of key spending priorities. In previous years, as in 2012, research identified that many are more inclined to consider savings as their insurance policy should the worst happen to them, despite the figures not always adding up.
With the average consumer having less than £2,000 in available cash or savings it reflects a disparity in actual savings versus the security levels they wish to aspire to. Most people would not survive more than a month utilising their savings if their circumstances changed.
How will they manage?
To verify how much consumers understand the realities of low savings, research asked how much they would require to survive financially for a month. Overall, 32% felt £501 to £1,000 a month would be sufficient. The reality is this amount would require people to have between £6,000 and £12,000 in savings to survive a year.
With a quarter believing they could manage for more than 12 months without a regular income this leads to the question of how they expect to manage financially. Research shows that consumers are not holding these amounts of funds so where else do they expect to gain financial support in times of illness or accident?
The results (see table, below) show two thirds believe their savings will see them through. Unless they are fortunate enough to have a money tree that keeps growing without the need to feed it, the figures simply do not stack up.
If additional funds were made available there appears to be a strong willingness to save more, with 77% saying they would put aside extra savings if they had £100 extra a month.