Shockproof your finances

A woman struggling with her finances.
A woman struggling with her finances.

No one likes to think the worst will happen. But, whether it’s due to a sudden job loss, an injury leaving you unable to work or the fallout from a relationship breakdown, new research suggests that suddenly finding yourself in a tricky financial situation may be more common than we like to think.

The Government-backed Money Advice Service (MAS) found that one third (32%) of us have experienced a serious financial shock in the past five years — and many of those finding themselves in trouble did not have the right insurance in place to cushion the blow, with only 35% saying they had cover.

And when the worst happens, the knock-on effect can often hurt others close to you financially as well.

According to the study, two-thirds (67%) of adults are not the only ones reliant on their income, with children topping the list of dependants, followed by spouses and parents.

Around £77 million-worth of insurance claims are paid out every day to help households and businesses cope with unexpected events, according to the Association of British Insurers (ABI).

The ABI says only one in four (24%) UK households has life insurance, yet protection insurers pay out around £9 million every day in financial support to families to help them cope with illness, injury or death.

Insurers also pay out nearly £8.2 million daily in domestic claims to repair homes and replace contents. But despite an average combined buildings and contents policy costing just £24 a month, one in five UK households (24%) does not have contents insurance.

While insurance can be a sensible way to protect your family’s financial future, building up a savings pot is also key.

StepChange Debt Charity estimates that 6.5 million Brits have been forced to rely on credit in the last 12 months, after their income unexpectedly took a turn for the worse. The charity would like to see stronger support for families to build up a “rainy day” fund, rather than being forced into debt if something should suddenly go wrong.

They estimate that if households had access to £1,000 in precautionary savings, half a million families could be prevented from falling into debt.

Generally speaking, it’s a good idea to have enough money saved to be able to cover your essential outgoings for at least three months as an emergency fund, which hopefully should give you enough time to adjust to your new situation.

The poor returns on offer on savings accounts may have put many people off, but getting into the habit of putting something away each month can see pots quickly starting to pile up.

The relaxation of rules around ISAs, which are ring-fenced from the taxman, have also helped to make saving more attractive, as people can now put away more than they have done previously and save in a more flexible way, holding all of their ISA allowance in cash, all in stocks and shares, or a combination of the two.

The ISA allowance limit for the 2015/16 tax year is £15,240.

:: For more tips, visit www.moneyadviceservice.org.uk

WHY... WORKERS ARE MISSING OUT ON £200 MILLION OF ‘FREE MONEY’

This month marks three years since the scheme to automatically place people into workplace pensions was launched.

Half a million people chose to opt out of a pension scheme after being placed in one - but because employers must re-enrol workers who decide to opt out every three years, these people will now be given a “second chance” to take part.

Workplace pension scheme Nest estimates that collectively, those who opted out have so far missed out on around £350 million being put in their pension pots.

This includes around £205 million which would have been paid into workers’ pension pots for them - had they stayed in their pension scheme - through employer contributions and tax relief.

POUNDNOTES

Financial fact: The number of mortgages given the green light for house purchases jumped to a 19-month high in August.

Bank of England figures show that 71,030 mortgages, with a total value of £12.2 billion, were approved for home buyers in August - the highest number seen since January 2014.

AVERAGE COST OF RAISING A CHILD TO AGE 11 ‘IS NEARLY £87,000’

The cost of raising a child to secondary school age is nearly £87,000 - a 4% increase in the last 12 months, according to research.

Halifax found that parents are paying more than £650 a month on a variety of items, equating to more than one third (35%) of average UK disposable earnings.

Childcare is the most expensive element of raising a child, the study found.

COMPLAINTS ABOUT PENSION-RELATED MATTERS JUMP

Pensions-related complaints jumped by around one fifth as the new retirement freedoms were brought into force, according to figures from the City regulator.

A Financial Conduct Authority (FCA) report showed 73,055 pensions-related complaints were made in the first half of 2015, up by 19.7% on the second half of 2014.

Yvonne Braun, director of long-term savings policy at the Association of British Insurers (ABI), says: “Pension providers have dealt with an unprecedented number of enquiries since the introduction of the pension freedoms in April - up 80% in the first month alone.

“Almost £2.5 billion was paid to customers in the first three months, showing huge numbers of people have accessed their pensions successfully.”

FACIAL RECOGNITION TECHNOLOGY MAY BE USED TO VERIFY PAYMENTS

Consumers’ faces could be used to help verify their payments in the latest move to combat card fraud in stores.

Worldpay, which helps nearly half of the UK’s high street businesses to process card payments, is researching the possibility of embedding tiny upward-facing cameras into card readers that would take an image of a shopper’s face as they enter their pin number.

This would be compared with an existing profile of the consumer linked to their card, to make sure it matches up. The images would generate “unique biometric templates”, so that consumers’ faces are mapped out.