Low earners more likely to struggle
This is because of their exposed and overlooked position compared to both benefit dependent groups and higher earners, according to the Foundation. This leaves them more susceptible to falling into the benefit-dependent group in the spending squeeze to come.
The reports show that low earners have:
1. Been more likely to have experienced a drop in income than other groups – this was most pronounced amongst the 25-34 age group where 66% reported a fall in income compared to 50% in the benefit dependent group and 33% amongst the higher earning group
2. seen a reduction in hours – the proportion of low earners citing a loss of income due to reduced working hours as a factor in difficulty meeting payments doubled from 2008 (rose from 3% in 2008 to 7% in 2009). Underemployment is as much of a problem as unemployment for low earners
3. experienced higher levels of personal inflation than higher earners – 41% of their income is spent on essential items (food, fuel, which have been the biggest drivers if price increases in recent years) versus only 27% among higher earners
The Resolution Foundation’s reports, the Low Earners Audit update and Behind the Balance Sheet published today highlight the vulnerable position low earners find themselves in but also the often skilful way they manage their money. Some low income households bridge the shortfall in their incomes by shopping around on the high street to always find the best deal, growing their own vegetables, bargaining at car boot sales, selling things on e-bay and through social networks of childcare arrangements etc.
Behind the balance sheet offers a fuller and more accurate understanding of how low income households juggle their limited incomes and expenditure, and what factors drive their financial decisions. The Foundation found:
• Financial health is a complex juggling act for low earners
• small changes in income and circumstances can be deeply destabilising
• there is no such thing as a purely economic decision – low earners rely on a whole range of hidden assets or have hidden liabilities
Sophia Parker, acting director of the Resolution Foundation said: “Too often it is assumed low income households find themselves struggling because of poor money management, bad character or over consumption. However, our research shows that low income households may in fact be better money managers than other income groups more adept at making less go further. We need the Government, financial services and third sector to recognise how hard many low income families work to stay financially independent and do more to prevent them from being squeezed in the mixed economy.”