How COVID-19 has affected family finances
July 3, 2020
You might be one of the lucky ones saving more than ever, or you might be on the breadline for the first time. Whatever the experience, COVID-19 has impacted every single one of us in some way. At Hapi, our vision is to help parents who are regularly saving, make better financial decisions and have a more secure future for themselves and their children. We caught up with three of our early customers to talk about the effect COVID-19 has had on their finances.
Tough time for the self-employed
“I was eligible for the Self Employment Income Support Scheme (SEISS), but maternity leave screwed me over. They take an average of the last three years’ salary, but for the last full tax year, I earned something like £2,000. If I had worked a full year, I would’ve been entitled to a lot more.” Lizzie’s a freelancer working in theatre, and her partner’s an academic - they have a toddler. Before having a child, she was the main breadwinner. She finished maternity leave six months before the pandemic hit, and was nearly back on her feet by March. With the theatre industry being one of the hardest hit, the work dried up within the space of a week and Lizzie found herself short-changed. Pregnant then Screwed estimate that 69,200 women are affected. They’ve launched a legal challenge against the government, with the support of Doughty Street Chambers.
Like most people, Lizzie and her family managed to cut down spending in some areas. “Our nursery was good, and didn’t charge us while they were closed, which makes a big difference. We can’t go anywhere or do anything so we’re saving on coffee and trains.” Whilst this helped, being in an industry which will be closed for a long time has meant Lizzie has had to diversify. “If you want to make the economic argument, the arts bring in £5 of revenue for every £1 of investment, but theatres aren’t going to be opening up anytime soon. Instead I’ve been doing communications work for an economic foundation. I’m not particularly passionate about it, but it’s quite well paid.” For those families that went from comfortable to scraping by in a short space of time, the pandemic has brought unprecedented challenges.
Financial planning isn’t just about investments, pensions and savings. It’s also about having the right insurance in place - to protect you when things don’t quite go to plan. This is especially true when you have dependents. It’s tricky to find the right insurance if you’re self employed but we’re big fans of Portabl and Collective Benefits. Self-insurance is also something to consider if you’re self-employed. Just put a small % of your income every month in to a pot that you only touch if you can’t find work.
Preparation is key
James and his partner found themselves in dire straits in March - just half of one income, and a new baby to worry about too. James’ partner - who was on maternity leave - worked for a high street brand that went into administration, and James had joined a travel start-up just before lockdown. On top of this, after a short period of furlough, James was let go with only a week’s notice, as he was still on probation. “We weren’t saving much for the baby - I have £100 a month going into her Junior ISA as a standing order, and we can’t lower that because of the provider’s restrictions. If I hadn’t found a new job, we wouldn’t have been able to do more than this - and we would have had to change to a more flexible JISA. We might still do this, and move it back when things are a bit more stable.”
In their day-to-day spending, the family has seen less change than others. “We’re not really going out people - we might go to the cinema or the pub occasionally but I cycle to work too. We haven’t seen a massive reduction in our everyday spending. Even when we go to the cinema, it’d be on a cheaper day. We do holidays, so we’re saving a bit there. I do usually put more than the average share of my income into savings, but it’s been quite a significant hit on both of us.” Whilst James did have some savings, they weren’t easy to access. “I had a few hundred pounds in a fund, but most of my savings were in a Stocks and Shares ISA so I couldn’t access it without penalties. We didn’t save in mind of us both not having a job for three months.” Luckily, James’ new employer has been doing well throughout the last few months, so things look more positive for him now.
There’s two main financial planning tips that we have for James and his family. Firstly - an emergency fund is crucial. You never know when things are going to go wrong and an emergency fund just gives you that extra cushion to fall on. Depending on what kind of sector you work in, this should cover between 3-6 months of expenditure. And make sure it’s an easy access account like Marcus. The next lesson is to make sure you’re in the right products. If you’ve gone for a JISA, there’s no reason your provider should force you to put £100 per month. At Hapi our JISAs have no minimum regular contribution amounts and you can start investing from as little as £10. This means if things get tight you can just stop contributing and pick up again at a later date.
Some silver linings
For others, Covid-19 has provided a rare window of opportunity. “We were definitely comfortable before, but we have a few debts. We have three credit cards, and a car loan but they were all 0% interest, and we had a plan. The slight financial discomfort we had was that Clara was on maternity leave for the last year, and the last six months were unpaid, but it’s been fine.” For Harry and Clara, saving for their son was a priority. ‘We were saving for him, despite the debts we had - which doesn’t actually sound wise on paper. We made sure any savings we made for him meant that our debts wouldn’t accrue interest, but we wanted to put a small amount aside each month.”
As a family with a pretty active social life, and no drop in income that hadn’t already been planned, lockdown has had some real financial benefits. “We spend a lot of our money on having fun - going to restaurants, going to pubs, we were meant to go on holiday. Those things have meant that financially we’ve come out better off - although the fun spending is coming back a little bit now. We used the surplus cash towards those debts I mentioned earlier.” The spare cash was for life’s small pleasures, too - more important than ever during lockdown. “We’ve had to ban ourselves from having takeaways - we’ve had so many because we’ve had spare cash. Our grocery bill has gone up too, as we’ve been at home more, and we both had subsidised lunches when we were in the office. The monthly spend on groceries has probably doubled.”
Like most people, Harry and Clara weren’t exactly prepared for this. “We’ve had a baby, a house and a wedding in the last three years, then once we’d paid that off we wanted to build our savings. We had a bit of money saved, but that was because I was going to have no income for six months, but there was a bit more left at the end than we expected.” Harry and Clara have chosen to pay off their debts faster with the extra cash, so they can save for their son more easily after. They’re certainly not alone, too - at least amongst those that can afford to. The BBC reports that households saved an average of 8.6% of their disposable income in the first quarter of the year - up from 5.4% in 2019. As always, if you have debts and find yourself with spare cash at the moment, it may make sense to pay it off before thinking about anything else.
If you’ve been fortunate enough to keep your income during the last few months and lower your expenditure then now might be the perfect time to start thinking about the future. Whether that’s paying down your debt like Harry and Clara did, or starting to invest for your future or your children’s future, this could be the perfect time to kickstart a habit that will change your life.
Planning for the future
Not many of us were prepared for a pandemic. While it’s unlikely we’ll see another one of this scale anytime soon, rainy days and hard times happen to the best of us, and there are lessons to be learnt. Even if you feel financially comfortable at the moment, it’s important to be prepared. Before the world goes back to normal and we’re spending all our money again, take this chance to take a close look at your finances and come up with a plan. Let it be a present to future you.
All writers' opinions are their own and should not be read as personal financial advice. Individual investors should make their own decisions or seek independent advice. As with any investment, your capital is at risk and may be going up as well as down which means you may be left with less than your initial investment. Past performance is not a reliable indicator of future performance. Please note that tax treatment depends on the individual circumstances or each client and may be subject to changes in the future.