Financial health of the nation: ‘Gap between the rich and poor increasing all the time’

Bank of Ireland conducts an annual national financial wellbeing index, sometimes twice in a single year, where it surveys more than 1,000 people using Red Sea Research. It divides the surveyed population into four cohorts which it identifies as struggling, stretched, managing or thriving. Each year it tracks these categories, asking them specific questions about whether they plan on spending, saving, borrowing or planning. There are also open questions such as what is their biggest concern, what’s on their mind, and what are they worried about at the moment. The current index has been conducted but is not released as yet. However, head of financial wellbeing with Bank of Ireland, Dawn Bailey, was able to discuss some of the key outputs.

“Back in 2019 and 2020 the biggest concern was Covid of course, but the most recent survey, conducted last September, has focused on the cost-of-living,” says Bailey. “Other issues would also have looked at mental wellbeing and the economy. One of the key questions asked was how people felt about the next 12 months, and then the next 12 months after that.”

The results are not surprising but point to a falling off in confidence. While some people may have been able to do involuntary saving during Covid, it would appear that these savings have been eaten up in the past year, mostly due to the high cost of living.

“We see 36 per cent of respondents nationally are confident about the next 12 months, but only 45 per cent of people have any kind of long-term financial planning. We also looked at renters and people trying to get on to the property ladder, and naturally there is a lot of pessimism there. Basically, the struggling and stretched cohorts are the least confident.

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“There is also a reluctance to speak with financial institutions if things are not going well. People feel they might raise a red flag but really, we encourage people to speak with their lenders,” she says.

Bailey points to a piece of research conducted by the Financial Conduct Authority in the UK last year which looked at people in financial difficulty. The research found that those who engaged with their lending bank enjoyed better outcomes ranging from financial resolutions to better mental health.

(https://www.fca.org.uk/publications/financial-lives/financial-lives-january-2023-consumer-experience)

Bank of Ireland operates a group website offering financial advice and a phone line, but Bailey also suggests if mortgage holders do not want to talk directly to their bank then they should go to an independent agency such as MABS.

One of the first personal insolvency practitioners (PIPs), established in 2013, is John O’Callaghan, founder of Irish Insolvency Services. Naturally in the nature of his work he is dealing directly with people in what Bank of Ireland would call the struggling cohort.

“The mess created back in the financial crash of 2008 was not properly cleaned up. I mean there were some resolutions – good or bad – but many people are still suffering from that period. And with the rising cost of living and inflationary interest rates it’s going to push them over the edge,” says O’Callaghan. “According to Government views, mortgage arrears have gone down substantially, and a significant number of mortgages have been sorted out, but I have an absolutely contrary opinion.”

O’Callaghan’s opinion is borne out by the fact he is actively hiring more staff to service potential customers, and whereas before he might have handled one or two customers per week now he is getting five to six calls a day with requests for help.

“And it’s not just financial, we understand the whole mental health issues. We have some customers on ‘watch’ it’s that bad, and for others I will take their calls regardless of the time they call me. The gap between the rich and poor is increasing all the time. Last summer I did eight bankruptcies in total. This year it’s been one or two a week,” says O’Callaghan.

In other surveys the Competition and Consumer Protection Commission (CCPC) in July launched the first in a series of landmark reports on financial wellbeing in Ireland. Drawing on 1,505 interviews with a representative sample of the Irish population, Financial Wellbeing in Ireland: Financial literacy and inclusion in 2023 presents an overview of Irish financial knowledge, attitudes and behaviour – from budgeting to borrowing.

The results make for interesting reading, highlighting O’Callaghan’s view of the widening gap between rich and poor. One in three reported they were just getting by, but when this response was broken down by educational levels people with only a primary education or less reported more than 50 per cent were in this category.

Only one in eight can cover their costs for a month or less in the event of income shock, with lone parents and people in shared homes among the least likely to have significant financial buffers in place.

John Lowe, aka The Money Doctor, agrees with O’Callaghan’s view of the gap between the haves and the have-nots.

“There have been 10 interest rate increases in 14 months. Children continue to be expensive – €42,000 is now the figure you will need to send one child through third level. Less than 47 per cent of the nation have made any provision for their retirement. However, if you do have money, and Covid investors did save, it is a good time to choose your investment. Even the NTMA State Savings increased their rates across the board. The humble prize bond saw its prize fund increased 300 per cent from 0.35 per cent of the fund (€4.4bn) to 1 per cent, while the best savings product is the National Solidarity Bond yielding 22 per cent tax free after 10 years – equivalent to 3 per cent gross annually and of course, guaranteed by the government,” says Lowe.