UK families are divided by a growing income gap despite their typical incomes reaching a three year high, the latest Aviva Family Finances Report revealed in December 2013. The report, which tracks the financial circumstances of different UK family types, also shows that while more families than ever have savings, an increasing number have less than a month’s salary to fall back on, as fears grow over the rising cost of living.
The typical monthly income of UK families had reached a record high of £2,166 in December 2013 – the highest figure since the Aviva report series began in 2011. Family incomes have risen consistently in the last 18 months and by 12% since January 2011 when the typical family took home £1,937 a month. Couples with one child gained the most over the last three years, seeing their monthly incomes grow by 18% (£357) to £2,321 in December 2013. Their gains are in stark contrast to divorced, separated or widowed parents who have seen their monthly incomes fall by 14% over the same period to £1,189.
These varying fortunes mean that while the overall picture has improved, UK families are now separated by a bigger income gap than in January 2011. Three years ago the difference between average monthly incomes of the highest and lowest earning family types was £1,281. That figure has since grown by 14% to £1,459 in December 2013.
Reassuringly, a record number of UK families now have some form of savings to fall back on. Just one in five (20%) have no savings in December 2013, compared with more than one in four (28%) back in January 2013 and one in three (33%) in January 2011. However, the cost of living appears to have worn away at family savings over the last year. December 2013 saw 30% of UK families with less than £500 put away, compared to 14% in January 2013. The percentage with less than £2,000 to fall back on had also jumped from 28% to 40% between January and December.
As a result, UK families are increasingly troubled by the threat of rising living costs. Almost two thirds (65%) of families cite a significant rise in basic living costs as a major concern over the next three months – up by nine percentage points from 56% in January. More than half (57%) are worried about the threat of unexpected expenses – up by 14 percentage points from 43% in January.
Cutting their monthly expenses is a common step among families to preserve their income. The second half of 2013 has seen 6% of families sacrifice their monthly spending on holidays; 5% fewer are spending on leisure goods each month; 4% have scrubbed clothing and footwear from their regular outgoings; and 3% have cancelled a satellite TV subscription.
Low rates on savings accounts have prompted those who are in a position to save or invest their money to look elsewhere for better returns over the last year. More families are investing in premium bonds in December 2013 (21%, compared with 17% in January 2013) as well as stocks and shares (17%, compared with 13% in January). In contrast, the uptake of ISAs among UK families dropped by two percentage points in six months, from 41% in July to 39% in December.