Financial vulnerability in Scotland
Analysis of savings data from the Wealth and Assets Survey
This analysis was published on 1 November 2019 by the Equality and Social Justice Analysis team in the Scottish Government on the Scottish Government webpages. A Word document version is available there.
Introduction
In this analysis, we looked at households in Scotland that are financially vulnerable. We found that 37% of households (or 890,000 households) were financially vulnerable during 2014-2016, when the data was collected.
Most poverty analysis is focused on people’s income only and says nothing about their savings. But when a household suddenly loses a large part of their income, for example because someone loses their job, then some households are able to draw on their savings to pay the rent and shop for food until a new job is found, while other households may have no savings to draw on.
In order to understand how many households might struggle if they lost their main source of income, we looked at people’s savings. Having an emergency fund might become more important in times where the future of the Scottish labour market is uncertain, for example because of Brexit.
The analysis in this report is based on data from the Wealth and Assets Survey (WAS), which is a valuable source of information on the economic well-being of households in Great Britain. WAS is a sample survey and any numbers shown here are estimates only and could be slightly higher or lower if we interviewed a different sample of the population.
This analysis is a preview of the next update to the Wealth statistics ‘Wealth and Assets in Scotland 2006-2018’, which will be published in January 2020. The analysis will be repeated with the most recent data within the update.
Definitions
In this analysis, we call a household financially vulnerable when there are not enough savings to cover basic living costs for three months. We chose three months because if someone loses their job, it can often take a few months until they have started a new one or get paid benefits1.
Under basic living costs we include costs of rent, food and fuel, such as gas and electricity. Of course, households with more adults and children have higher costs than smaller households, so we used different costs for different household sizes. On average, Scottish households spent £1,522 on basic living costs over three months2.
Under savings we include any kinds of savings and investments that can be turned into cash within a few days. This includes current, ISA and savings accounts, premium bonds, stocks, shares and trusts, but not fixed-term or dividend-only investment products. From this, we take off current account overdrafts, any arrears, and repayment commitments for three months from loans, credit cards, store cards, mail orders, and purchase hire.
Who is financially vulnerable?
Using the definitions above, we find that on average, 37% of households are financially vulnerable. We call the remaining 63% of households financially resilient.
The chart below shows that households with lower incomes are more often financially vulnerable compared to those with higher incomes. However, vulnerable households are found in all income bands across Scotland. Even some households with the highest incomes have little savings and might struggle if their income suddenly stopped. And on the other hand, some low-income households do have enough savings to tide them over a tough spot.
Income distribution
Table
| Income decile | Proportion of households |
|---|---|
| 1 | 66% |
| 2 | 58% |
| 3 | 57% |
| 4 | 37% |
| 5 | 34% |
| 6 | 29% |
| 7 | 32% |
| 8 | 20% |
| 9 | 15% |
| 10 | 9% |
| All | 37% |
| a Source: Wealth and Assets Survey | |
| b Income deciles are based on equivalised net household income |
We found financially vulnerable households across all population groups. The groups of households that are most likely to be financially vulnerable (workless, young, with children, lone parents) are often small, so the bulk of financially vulnerable households is made up of households with different characteristics: they often are working-age couples in employment and living in rented homes.
Household type
Economic status of the household reference person
Tenure
Tables
| Household type | Proportion of households | All households |
|---|---|---|
| Single male pensioner | 31% | 110,000 |
| Single female pensioner | 24% | 310,000 |
| Working-age man, no children | 46% | 260,000 |
| Working-age woman, no children | 49% | 220,000 |
| Lone parent | 81% | 120,000 |
| Pensioner couple | 16% | 340,000 |
| Working-age couple, no children | 32% | 480,000 |
| Working-age couple with children | 43% | 460,000 |
| Other hhld type | 50% | 90,000 |
| All | 37% | 2,390,000 |
| a Source: Wealth and Assets Survey |
| Economic status | Proportion of households | All households |
|---|---|---|
| Self-employed | 28% | 110,000 |
| Employed | 36% | 1,190,000 |
| Retired | 25% | 810,000 |
| Inactive/Unemployed | 79% | 280,000 |
| All | 37% | 2,390,000 |
| a Source: Wealth and Assets Survey | ||
| b The economic status refers to that of the household reference person. |
| Tenure | Proportion of households | All households |
|---|---|---|
| Owning outright | 12% | 820,000 |
| Buying with mortgage | 33% | 750,000 |
| Renting | 66% | 820,000 |
| All | 37% | 2,390,000 |
| a Source: Wealth and Assets Survey |
How much do financially vulnerable households need to be resilient?
Over £ 1.6 billion would be required to make every household in Scotland financially resilient.
The table below shows different kinds of households and how many of them are financially vulnerable. The households are grouped by tenure, age and work status of the household reference person, and whether there are any dependent children in the household.
The table also shows how much money the different groups would need to be financially resilient, overall as a group, and on average per household. The average amounts differ mainly because of the different household sizes. Also, the overall amounts are quite high because many vulnerable households not only have no savings, but they are also in debt.
Households with children and a mortgage have the largest gap overall. They also have the largest gap per household. The main reason for this is that they have higher living costs.
The largest group of financially vulnerable households are workless working-age households who rent their homes. But their average gap per household is below the Scotland average of £ 1,400.
The tree map shows which groups from the table are larger or smaller.
Cost of financial resilience table
| Group | Number of households | Total gap | Median gap |
|---|---|---|---|
| Renting, 65+ | 130,000 | £ 120 million | £ 800 |
| Renting, 16-64, Working, with children | 120,000 | £ 240 million | £ 1,700 |
| Renting, 16-64, Working, no children | 100,000 | £ 210 million | £ 1,700 |
| Renting, 16-64, Workless | 190,000 | £ 280 million | £ 1,200 |
| Buying with mortgage, with children | 130,000 | £ 370 million | £ 1,900 |
| Buying with mortgage, no children | 120,000 | £ 270 million | £ 1,500 |
| Owning outright | 100,000 | £ 140 million | £ 1,100 |
| All | 890,000 | £ 1,630 million | £ 1,400 |
| a Source: Wealth and Assets Survey |
Tree map
The three months period is a rule of thumb used for emergency or rainy day funds in a number of reports: three months’ essential outgoings (Money Advice Service), three to six months worth of regular expenses (Barclays), six months worth of bills (MoneySavingsExpert.com in a BBC article), three months of usual wages (money.co.uk).↩
We calculated basic living costs using the Office for National Statistics’ Family Spending in the UK publication for 2013/14 - 2015/16. £1,522 is the total weekly Scottish median expenditure on housing, fuel and power, food and non-alcoholic drinks, averaged over three years, multiplied by 52 (weeks) and divided by 4 (quarters). We adjusted for different household types by looking at median expenditure by household type relative to the average (UK level). This adjustment means that basic living costs range between £863 for a household with a single retired person and £2,111 for a household with two adults and three or more children.↩