St. James’s Place Financial Health Index reveals scale of household economic strain

St. James’s Place Financial Health Index reveals scale of household economic strain across the country – and complexities underlying a clear North-South divide

• Overall financial health is four times higher in the South East than in the North East
• Yet high costs of living mean even relatively wealthy South East households have a lower perception of their wealth
• Scotland sees highest growth in average household wealth in last decade at 66% - versus 19% for London and 18% in the North East
• More than half (51%) of people state they are not financially comfortable and 78% claim they do not consider themselves wealthy
• Less than two in five (38%) have a financial plan in place for future, according to the research conducted with CEBR

Financial health is four times higher in the South East than the North East, underlining the scale of efforts needed for ‘levelling up’ financial wealth and wellbeing across the country, according to the first UK Financial Health Index from wealth management group St. James’s Place.

The SJP UK Financial Health Index, developed in conjunction with the Centre of Economics and Business Research (CEBR), analyses how wealth is distributed across the nation and where financial health is strongest. The Index is broken down into three distinct pillars: Wealth, Wealth Drivers, and Perceived Financial Wellbeing¹, with each pillar consisting of several indicators which measure a certain element of an individual’s financial position.

The Index highlights a clear North-South divide with the South West, the South East and the East of England performing much better on the Index than their northern counterparts. The South-East is the region with the strongest overall financial health, with a score of 76 out of a possible 100. Meanwhile, the North East is the lowest ranked region, attaining a score of only 19.

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Perceptions don’t always match the reality

When it comes to perceived wellbeing, the South East and London performed relatively poorly, despite being two of the highest ranking regions on the Wealth and Wealth Drivers pillars. Despite average total wealth in London at approximately £1million, substantially more than any other region and the UK average of £384,208, the capital ranked the fourth lowest UK region for perceived wellbeing. When looking at two indicators in particular - being up to date with all bills and whether financial constraints impact quality of life - London attained the lowest score across all regions for both. In addition, the disparity between the average total wealth in London and the rest of the country is largely due to property prices which accounts for over half of Londoners’ average total wealth.

Similarly, despite the South East topping the table in terms of financial, pension and physical wealth, issues such as cost of living and being unable to handle an unexpected bill drive much poorer relative perceptions of wealth in the region – ranking 6^th out of the 12 regions on the Perceived Wellbeing pillar. On the other hand, Scotland ranks the highest in terms of perceived wellbeing, despite coming mid-table in the Wealth and Wealth Drivers categories (6^th and 5^th respectively).

Beyond the North-South divide

Wales and Northern Ireland score low on the SJP UK Financial Health Index – 32 and 21 respectively – placing them third and second lowest after the North East. Northern Ireland scores lowest (13) and Wales scores third lowest (23) on the Wealth Drivers pillar, and they rank lowest on perceived wealth too. People in Wales are most likely to attribute their growth in wealth to rising house prices (45%), and least likely to attribute wealth growth to investment performance (19%), while Northern Ireland is the region most likely to cite the cost of living as the key impediment behind wealth growth (51%).

Notably, Scottish households have enjoyed the biggest wealth growth over the last ten years, attaining the highest annual growth rate across all regions, with average wealth in the region growing by 66%. In comparison, average household wealth in the North East only grew by 18% in the same period, and by 19% in London.

Financial resilience

The Index also reveals stark findings around how financially resilient, comfortable and wealthy the nation feels regarding their current financial situation. Across the whole of the UK, a third (29%) felt financially vulnerable, more than half (51%) stated that they were not financially comfortable and three-quarters (78%) of the population stated they did not consider themselves wealthy.

Those who felt financially vulnerable believe it would take a doubling of their current wealth to make them financially resilient², while for those that do not feel wealthy think it would take ten times their current financial position change this.

Key factors driving financial health

A third of the UK public (34%) reported that rising property prices was the main reason behind their increase in wealth, ranking this as the second highest contributing factor for wealth growth, just behind the leading driver, pay rises (35%). Lifestyle changes enabling greater savings came in third (30%). However, in London, where house prices are much higher than many other parts of the country, 59% said that traditional investments (shares, funds), alternative investments, or cryptocurrency were the key drivers of their wealth growth over the last ten years, compared to 30% of Londoners that attribute wealth growth to rising house prices.

The survey also sought to identify factors preventing people from seeing gains in their wealth by enquiring on the key barriers behind wealth growth - 44% of respondents cited the cost of living as the key impediment behind wealth growth, and indeed the recent ONS inflation figures showed cost of living has surged at its fastest pace in almost 10 years. The next closest barrier was low interest rates, with nearly a quarter (23%) of the respondents stating so, followed by low pay, with a fifth (19%) stating so.

Is having a financial plan the key to confidence?

Less than two in five (38%) people have a financial plan in place for future, according to the research. This ranges from only 30% of people in the North East with a plan to 63% of Londoners with a plan. Of those that have a financial plan, 78% say it makes them feel more confident about their financial position.

Alex Loydon, Director of Partner Engagement and Consultancy, St. James’s Place, comments: “Financial health captures much more than just our total wealth, it assesses the full picture of how comfortable and resilient we feel to handle pressures on our finances. The UK Financial Health Index shows that not only is wealth unevenly spread around the UK, but in some areas, there is a clear mismatch between the reality of people’s wealth and their own perception of being wealthy, meaning that people across all regions are experiencing poor financial health in one way or another.

“Clearly this is a complex picture and there are many factors that are impacting financial wellbeing across the country, and some of these are well outside our individual control while others require collective action. However, with the cost of living rising and greater strains on our money, it’s more important than ever to engage with finances and to have a plan in place. The research shows the impact that can have on people feeling much more confident about their future security and we see the value that provides through the work of our Partners to help clients across the country plan for their future.”                 

– Ends –

¹  Financial Health Index Pillars:

Wealth pillar: The Wealth pillar, simply put, seeks to capture the total value of assets individuals possess. Given how current wealth largely influences financial security and stability, determining total wealth is undoubtedly key for building the Index. The pillar consists of five distinct indicators: 1. mean household property wealth, 2. mean household financial wealth, 3. mean household pension wealth, 4. mean household physical wealth, and 5. the proportion of households with wealth over £250,000.

Wealth Driver pillar: The Wealth Drivers pillar aims to determine how individuals build on their by wealth by exploring different income streams. Income streams are key in ensuring that wealth is maintained at a sustainable level, and serves as a foundation for wealth growth. The pillar consists of five distinct indicators: 1. median gross annual earnings for full-time employees, 2. employment rate, 3. share of workers on temporary contracts, 4. average investment income, and 5. annual house price growth.

Perceived Financial Wellbeing pillar: The Perceived Wellbeing pillar looks into uncovering individuals’ perceptions of their own financial position. An individual’s financial wellbeing is largely shaped by how they view their own financial position, regardless of the absolute value of wealth they might possess. The pillar consists of four distinct indicators: 1. satisfaction with wealth, 2. share of households up to date with all bills, 3. ability to handle a major unexpected bill/expense, and 4. proportion of households who feel that financial constraints impact quality of life.

Financial resilience is the ability to cope financially when faced with a sudden fall in income or unavoidable rise in expenditure.

Full Financial Health Index scores:

All scores are out of a possible 100.

Methodology

CEBR’s methodology involved collating a list of indicators which captured important aspects of wealth, drivers of wealth and perceptions of wealth, before collecting data on these indicators using a range of metrics and results from the bespoke survey. For variables that were not up to date, CEBR ‘nowcasted’ them to the most recent year i.e., 2020, using growth rates from the survey and other metrics. Subsequently, CEBR scored each region with a score between 0 to 100 based on its performance as measured by each indicator. The min-max approach is used to assign an index value to each region. Specifically, the formula used is (data point – series min) / (series max – series min). Given that a higher overall index score indicates better performance, for indicators where a lower figure signifies a better performance (e.g., share of workers on temporary contracts in Wealth Drivers pillar), the negative equivalent of the data point is used to ensure that the index accurately portrays the best/worst performing regions for these indicators. Once scores between 0 and 100 were assigned to each region within each indicator based on the previous steps, the indicators were weighted equally to calculate the overall pillar score, which then in turn were aggregated into the overall Index score.