Pandemic may be widening Ireland’s financial wellbeing gap
By Gavin Kelly, Chief Executive of Bank of Ireland’s Retail Ireland division
The term ‘financial wellbeing’ might sound like jargon for how much money you have. It isn’t.
Financial wellbeing is about making the most of what you have, not how much you earn. It’s about having the knowledge, tools and confidence to manage your finances so that you can cover day-to-day expenses, plan for the future, and cope with the unexpected.
We accept that our physical health is important, and as a society we’re finally giving mental health the attention it deserves. Financial wellbeing matters too. It matters because it has a profound impact on so many other aspects of our quality of life, not least our mental and physical health.
Bank of Ireland launched a Financial Wellbeing programme in March 2019 to support consumer financial capability and confidence. As part of this we regularly take the nation’s financial pulse through our Financial Wellbeing Index. It’s based on a national survey which asks questions under four topics related to people’s finances: saving, spending, borrowing and planning. The answers are combined into a score on a scale of 0-100, indicating whether a respondent is “struggling”, “stretched”, “managing” or “thriving” when managing their finances.
The results of the most recent survey, conducted for us by RED C in October, suggest that the COVID-19 pandemic is affecting us all financially, but not in the same way.
About one in three of us (36 percent) are either “struggling” (to keep their head above water financially) or “stretched” (living from payday to payday). That number would most likely be higher if it weren’t for the unprecedented support provided to over 1 million people through the Government’s unemployment and wage subsidy schemes and through initiatives such as payment breaks for mortgages and other loans.
About one in four of us (27%) don’t have any insurance cover, up seven percentage points since the February survey pre-Covid. This trend is most pronounced among the “struggling” and “stretched”, most likely because they are prioritising day-to-day needs over insurance cover.
However, that is only one part of the story. Our latest survey also found that about one in four (27%) are in the “thriving” category, meaning that they can effectively manage their spending, savings and borrowing and can also plan ahead for the future. That number has increased by four percentage points from February, which probably reflects the fact that many people have been fortunate to keep their jobs and incomes intact. With lockdown restrictions curbing their spending, their savings have increased. Central Bank data show Irish household wealth rising to a record €166,051 per capita in the second quarter of the year.
This is just a snapshot, of course, and it remains to be seen how the financial wellbeing index evolves as the pandemic runs its course. However, for the moment at least, it looks as if the pandemic may be widening the gap between those who have high financial wellbeing scores and those who don’t. And that should be a big concern for us all.
The ESRI has noted the unequal impact that the COVID-19 pandemic has had on the Irish labour market. Some sectors such as hospitality, construction and the arts have been more severely impacted than others and also have a higher share of lower paid and part time workers. In February, hospitality accounted for 7 per cent of employees but only 1 per cent of PAYE contributions.
There is indeed a strong correlation between income and financial wellbeing, but one doesn’t necessarily follow the other. Our research shows that 44 per cent of those in the top financial wellbeing category (“thriving”) have an income of less than €50,000.
Some people with high incomes can actually be quite poor at understanding or managing their finances. Conversely, others on more modest incomes can have high financial literacy, proactively managing their daily finances while also saving for that rainy-day.
Long-term financial wellbeing
Financial wellbeing can be improved in the same way as physical health or fitness – through awareness, setting goals, and support. So far, over 100,000 people have taken our online financial health check, hundreds of schools have participated in our new financial literacy programme and we’ve created a specialist unit to provide banking support to vulnerable customers.
Before the pandemic, Ireland’s national financial wellbeing score had been ticking upwards from the low 60s to the mid 60s. This corresponds to the ‘managing’ category which means that, as a country, we are generally living within our means with some ability to plan for the future. Our score has increased further due to the impact of the pandemic on savings and spending, although this needs to be treated with considerable caution given the unequal impact of COVID on society.
It may be that much of the accumulated household savings are being held as a precaution rather than being used to pay down debt, invest or save for long-term goals. If spending habits return to normal post COVID, then the boost we are seeing to some household finances may prove to be temporary. For those who find themselves struggling or stretched, however, the negative impact of the pandemic will be felt for much longer. Whichever situation people find themselves in, Bank of Ireland will be doing our bit to make a lasting improvement to their financial wellbeing.