Welcome to the 2020 edition of OpenMoney’s UK Advice Gap Report, the second year we have run this study.
The data, combined with our own experience of speaking to customers every day, gives us an insight into the financial lives of people of all ages and levels of wealth. It highlights the real issues presented by the advice gap in the UK and the importance of the finance industry and policy makers working together to increase the availability of regulated financial advice.
There is a danger that Coronavirus will be used by some as an excuse to hide existing problems. This is particularly the case with the state of many household’s finances. As this research shows, much of the population was already in a precarious financial situation in the days before the crisis really escalated. Too many people were not saving for their future, too few were planning their finances in advance and not enough were able to access regulated financial advice. The events of the last few months have only amplified these problems.
At OpenMoney we are determined to change this. We want to make financial advice more accessible to more people, helping them take control of their money, build up savings and start investing in their future.
We believe this mission has never been more important.
The advice gap is growing
Some 59% (2019: 56%) reported having some form of household debt and 44% (2019: 46%) had run out of money before their next pay at least once in the previous year. The need for accessible, affordable - and particularly free - advice has never been greater. This need is reflected in the increasing free advice gap, with some 20.9 million UK adults who would potentially benefit from advice unaware of free advice services or unable to access them, an increase of 1.1 million over the last year.
Our research tells us that when people take specialist money advice the vast majority have a good experience. And yet in the last two years only 12% of our respondents have accessed free money advice and just 10% have taken paid-for advice. We also asked respondents what differences, if any, there are between financial advice and financial guidance. A large number admitted that they simply don’t know, but those who did answer revealed a great deal of confusion about the terms, as well as some distrust.
Spending for the now rather than saving
It is clear from our research that too many people aren’t planning or investing for the future. In some cases they are not even doing so for the shorter term. Coronavirus has highlighted the need for a cash buffer and some of the impact we’re seeing now reflects the lack of that – whether through affordability, awareness or prioritisation.
Only 24% (2019: 24%) of our sample save every time they get paid, 21% (2019: 25%) don’t have a pension and the same number have no cash savings at all. A quarter (24%, 2019: 25%) plan their finances month-to-month and 17% (2019: 19%) don’t plan their finances at all. The need for accessible regulated financial advice to support people in developing a long-term perspective on their finances and planning for that is palpable.
It’s no surprise then that many households find themselves experiencing financial difficulties on an alarmingly regular basis. Just under half (44%, 2019: 46%) of respondents have run out of money before their next pay day, with one third (34%, 2019: 33%) turning to short-term credit (overdraft, credit card, payday loan or buy now/pay later scheme)because they didn’t have enough money for the essentials and 29% (2019: 27%) borrowing from family or friends to fund day-to-day expenses.
Distrust in advice is hindering people’s ability to save
Despite all that, respondent confidence in their ability to manage money and make financial decisions remains high with 62% (2019: 64%) stating that don’t need any help. When we asked our sample to share their perceptions of financial advice one theme was that it was unnecessary: “Someone working on commission trying to sell me something I don’t want or need”, “Someone who wants to charge you a lot of money for something you could research yourself" and various references to Google. Perception and understanding are just as significant issues as awareness and accessibility.
Most financial advisers work very hard to provide trustworthy, suitable, client-centred advice, but many people find it hard to differentiate between regulated advice and generic guidance. Worse still, there is a strong theme of distrust around the impartiality of advice and the value it provides.
Then this over confidence by respondents to source their own advice is belied by the data we have seen around debt and planning and the fact that 39% (2019: 40%) are either struggling with household expenses or have already fallen behind with their bills. This situation can only worsen as the longer-term impact of Coronavirus on people’s income starts to bite.
Taking the advice plunge
The most frustrating aspect of all is that, despite some choice perceptions of paid-for financial advice and even of free guidance, the outcome when either is taken is largely positive. Those who received free specialist money advice were able to get help quickly (39%, 2019: 35%) and at a convenient time (46%, 2019: 49%) with around a fifth (21%, 2019: 20%) also getting help with related problems. There was a lower take up of paid-for advice but 16% (2019: 6%) also received help with connected issues.
The good news is that we do appear to be talking more about our money issues. However, UK adults are more comfortable turning to the ‘Bank of Mum and Dad’ which ranks as one of the UK’s largest mortgage lenders and now appears to be expanding its services into financial advice. Almost a third of those who speak to their family or friends for guidance have spent over 30 minutes in the last year doing so, and these conversations can cover a wide range of financial topics and products. Our challenge as an industry is to broaden that out to potentially more appropriate or better equipped sources.
Then for those to turn to help online, the three most commonly accessed sources of free advice over the last two years were MoneySavingExpert.com (11%, 2019: 10%), StepChange (11%, 2019: 9%) and CitizensAdvice (8%, 2019: 8%). Over a third of respondents (36%) found the advice through their own research, down from 40% in 2019, while a fifth (21%) followed the recommendation of friends or family, up from 16% last year, and a further 15% (2019: 15%) were referred by another organisation they approached for help.
What can we do to help?
It’s evident that many people in the UK are in aprecarious financial position, often relying on short-term debt or borrowingfrom friends while not being able to save for emergencies or the future. Thenumber of respondents with no outstanding household debt had already fallen from 38% last year to 34% this year and early evidence suggests the significant impact of Coronavirus on household finances will only drive this number further down. We also worry that the impact of Covid-19 will force more people to rely on credit cards, overdrafts and short-term debt for everyday essentials and potentially drive them into financial difficulties. And we are concerned that mortgage payment holidays will simply store up the problem for some people who could struggle with larger monthly repayments or longer terms when the ‘holiday’ ends.
With that in mind, we are calling on the Government to strengthen consumer credit law and align regulation around all forms of unsecured debt. Specifically, to cover fully buy-now-pay-later schemes, workplace lending services and other new forms of credit to ensure that using this form of debt is a considered action taken with full knowledge of the implications. We believe the industry’s ultimate goal must be to close the advice gaps and help everyone, regardless of age, wealth or experience, make the most of their money today and for the long term. A crucial first step is to improve the stability of many people’s day-to-day finances and slow the growth of debt.
Click the download link to download our full finance gap report to see more on how the advice gap as evolved both over the last 12 months and since the original advice gap research conducted by Citizens Advice in 2015, and what this means for you.
*All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,081 adults. Fieldwork was undertaken between 9th and 10th March 2020. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).
Did you know, your child could have a long-forgotten trust fund set up by the government?
According to Moneywise there are currently over one million missing Child Trust Funds (CTFs) that need claiming! It’s important to check if your child has a trust fund, otherwise they could be missing out on hundreds of pounds when they turn 18.
These government funded CTF accounts were set up with an initial amount of up to £500 - with £250 being the average. That’s a sizeable chunk of money that could make a difference to your children’s lives, so it’s worth tracking the accounts down to see what is available to your child.
How to track down your lost CTF –
If you’re unsure if your child had a CTF or where it was held, you will be able to find out by following the steps that HMRC have set out:
- Log in with your government gateway user ID and password. If you do not have one, then you will need to sign up.
- You’ll be asked a few personal questions to determine if you are the trustee of your child’s trust fund.
- HMRC will send you details of who your child’s trust fund provider is via post within 3 weeks of them receiving your request.
- HMRC will contact you for more information if you’ve adopted a child or if a court has given you parental responsibility for them.
It’s a very simple and straightforward process that could give your child’s savings a boost when they turn 18! If you would like to know more about CTFs, you can read our blog on Child Trust Funds and what they are here. If your child does have a CTF, you can read more about what to do with it once it has matured, here.
The lone wolf, single pringle, the consciously uncoupled. Those of us out there without a significant other and/or living alone are well aware of the benefits – total monopoly over the television, no queue for the bathroom, only your own snoring to battle etc etc, but there are a few downsides that are seldom discussed, mostly when it comes to money. Who knew that being on your own could actually cost you more in hidden charges?
There has been a notable decrease in the number of people choosing to get married for a number of reasons, and the divorce rate in the UK is also on a steady increase, meaning that more and more people are discovering the true cost of living on your own. BBC Radio 4’s Money Box  states that a single person spends up to £2000 more on living costs per year. This is shocking when you’re half the number of people in a couple, so let’s take a look at where to be mindful of costs creeping in and how to combat them.
Unless you’re in the industry or have found yourself on the receiving end of an extra charge, you would never know the single supplement existed. Some hotels or travel operators will often charge solo travellers a fee for solo occupancy of a room. They claim this is to cover the costs of preparing a room (laundry, housekeeping, heating etc) which would remain the same regardless of fewer guests occupying the room.
Tip: Plan your holiday with supplement free companies.
You’re not the only one unhappy with this extra charge, and so there are companies who specialise in offering trips for solo travellers without the extra ‘baggage’. Cox & Kings Travel for example, offer many trips and benefits to those off on adventures alone.
Rent & utilities
When renting, you’re paying for the property as a whole, regardless of how many people are living there. The cost won’t decrease just because you have decided to live on your own, so when you’re paying the full whack on your own for both rent and bills, you could easily be paying close to £1000 per month (London exceeds this by far). Again, it’s one of those costs where you’d think you would be saving by being one person, but it’s just not the case.
Tip: Apply for the discounts you’re entitled to and shop around for deals on your utilities.
A little hidden fact is that you can alert your local authorities that you are living on your own (or if all other people at the property are under 18 year sold) and receive a 25% discount on your monthly council tax bill. Arguably,this should really be 50%, but hey every little counts!
If you’re living on your own it’s worth noting that a lot of utility and broadband companies will take into consideration your circumstances when offering a tariff. Be sure to state that you live on your own – even fixed fee tariffs with companies such as Octopus or Bulb will reassess your bills if you seem to be consistently overpaying.
You’d imagine costs of food shopping halving when you shop for one, when really there’s very little that’s sold in single servings. Fine, we all know the ‘serves two’ suggestion on share bags of crisps is a lie, but on the whole you end up doing a big shop suited to a small family which can be costly. A lot goes to waste too, particularly perishables.
Tip: Try to buy loose fruit and veg.
If you know that you’re not likely to get through a pack of three peppers or a bag of potatoes, buy them singularly – not as fun at the self-scanner but will undoubtedly save you a bit of money. Freeze what you can. If you do end up with that family shop, it needn’t be a weekly occurrence and what you do have can last longer. As cliché as it sounds, batch cooking is your best friend!
One thing we will say is that household products (washing up liquid, toilet roll etc) may cost the same, but they last forever!*
*Nothing lasts forever, but they do last a very long time.
Couple gym memberships exist and work out cheaper than an individual membership. Great for those who want to lift together and stay together, but hardly fair on the individual member looking to join and use the same facilities in the same way. The difference can be up to £10, which is a huge amount when nice gyms don’t come cheap.
Tip: Shop around for a gym that doesn’t hold this policy, or failing that, where the difference is at least minimal.
Living on your own is a big deal. It’s independent and a pat on the back to yourself when you’re ready to move on from your house-sharing days. We’re not trying to dampen that, more so arm you with the facts before you start spending all the money you’ve ‘saved’ in your imagination. It’s also a good reminder to others that the lone rangers aren’t as flush due to the ‘half couple’ status as you may think!
We’ve also got you covered if you’re looking to move in with someone. You can read about what costs to take into consideration, here.
When you think of scams, it’s easy to assume you would be able to spot one a mile off, but as technology advances, financial scams are becoming more sophisticated. They are no longer restricted to emails claiming you’re due to inherit large sums of money or requesting financial support from a long lost relative. These fraudulent schemes are designed to look and sound legitimate.
The recent outbreak of coronavirus has led to a spike in financial scams, so here are a few tips for protecting yourself against scammers.
1. Check the FCA Register
You can search the FCA register to check that a company is registered and see their credentials. If a company is not registered, you may not be covered by the Financial Ombudsmen Service, or Financial Services Compensation Scheme if things go wrong.
2. Ask questions
We do not operate under any third parties. If you are contacted by any company claiming to be affiliated with an FCA-registered firm, you should always check this on the FCA register before proceeding. If you’re still in doubt, you can always contact the supposed affiliated company for confirmation.
3. Verify who is contacting you
If you receive a call or email asking for personal information of any kind that you were not expecting, don’t share it. It is very rare for a legitimate company to ask you to share bank details over the phone or via email (banks will take several steps to confirm your identity before discussing your accounts). You should:
- End the call and try calling them back using the number on their website – any reputable company won’t mind.
- Check the email address that the request was sent from. You can check the legitimacy on the company’s website. A common technique used by scammers, is sending emails that appear to be from companies such as TV Licensing UK asking for your bank details. A quick check of the sender’s email address and profile image will usually reveal a personal email address and a stock image.
4. Don’t rush
If there is a time limit, or you are being encouraged to move quickly, this is a red flag. Scammers will often pressure you, so that you don’t have time to look make a considered decision or do your research on the company. This pressure won’t always be obvious, there’s often a lot of charm involved, so be aware and have a natural level of suspicion! Remember, no reputable company will ever pressure you to make any financial decisions.
5. Check reviews
Take a look at review sites such as Trustpilot, and tread very carefully if they don’t feature anywhere. The experience of others is a good indicator as to how a company operates and looks after their customers.
6. Test out their customer support
Before you commit to a company, try out their support channels. You can tell a lot about a company by the way they support their customers, and you don’t want to be caught out by a bogus support number which is never answered.
When it comes to your money, there’s no room for doubt. It is always worth doing your research before making financial commitments of any kind. When it comes to protecting yourself against financial scams, the FCA’s ScamSmart initiative is a really useful tool that can help you understand whether an investment or financial opportunity that you have been offered is legitimate.
We are always here to support you, so if you have any questions, please reach out to our support team.
Few of us have escaped a financial hit from the outbreak of Covid-19. You may face an income reduction, a slump in your investments, or concerns about whether your business will survive.
Yet whatever your financial woes, there are simple ways to reshape your financial future and manage your money amid uncertain times. Our guest blogger and personal finance expert, Harriet Meyer explains how.
Now is the ideal time to reconsider your long-term goals, and what you’re trying to achieve with your finances.
You may care less about that promotion, starting a business, or travelling the world, for example – and more about making your home life as comfortable as possible. Or perhaps you simply have more time to check whether your finances are likely to support your goals, if these haven’t changed.
If you can envisage what you want to achieve in the years ahead, you can do the financial groundwork to make things happen.
Track your spending
You may have dipped into savings to make ends meet during the pandemic. So it could be that you need to rebuild your cash buffer, as a priority.
Drawing up a budget is a good start, and the best way to track your spending. Even if you think you have no money to spare, you may find you can free up cash that could be put to better use for your future.
Make a list of all income and outgoings. Then, go through your spending to see where this may be cut to boost your savings potential.Ideally, you want to slot away enough to cover around three months’ worth of living expenses.
Protecting yourself from financial difficulties by investing in insurance can be a future lifeline.
For example, income protection insurance will provide you with a tax-free income if you’re unable to work because of an accident or illness. You choose when cover kicks in – after, say, three or six months. This will depend on any savings and cover from your employer. This can be particularly valuable insurance for the self-employed who do not have any sick pay or insurance through work.
Alternatively, critical illness insurance will pay a lump sum if you are diagnosed with one of the illnesses covered by the policy,but these policies are typically more expensive. A broker or financial planner can help you work out the right cover for your particular situation.
Keep calm and carry on
If you have money in the stock market, the value of your investments may have plummeted during the market slump. But history shows that, given enough time, markets typically recover. So hold your nerve and,ideally, avoid selling out of the market during dips, as this will only turn paper losses into real losses.
Of course, you can’t be certain there won’t be further falls, but if you have a long-term time frame of at least five years and,ideally, longer, this should give your investments a chance to recover.
Start an investment habit
You should only invest if you can afford it, and have many years until you’re likely to need the money – for retirement, for example. Investing may not be for you if you have expensive debts to service.
If you're thinking of investing, you could take OpenMoney’s financial health check, which considers your circumstances and whether or not investing is right for you, or if there are other steps you should take first.
While markets have been volatile, this could be an opportunity for those who haven’t yet invested to start doing so. That’s because you benefit from so-called pound cost averaging. This means you buy more shares when their price is lower and fewer when their price is higher.Over time, this helps to potentially smooth returns.
Get a financial boost from the taxman
Tax-efficiency is key to long-term financial returns,and both pensions and ISAs offer generous tax breaks. You can slot up to£20,000 into an ISA in the 2020/21 tax year, with all investment growth and interest free from tax. Even if you cannot afford to save into an ISA this tax year, it’s one to bear in mind for future savings.
You get tax relief at your personal rate when you save into a pension. So if you’re a basic-rate taxpayer, £80 will amount to a £100 contribution, with 20% tax relief added. A higher-rate taxpayer only needs to save £60 to make a £100 contribution. Over time, this can add up to a substantial boost for your retirement pot.
Talk about financial concerns
Money can be a taboo subject among friends and family.Yet by openly discussing any concerns or needs that may have arisen during the pandemic, you may gain a fresh perspective and support for the future.
Find someone you trust to talk to about any stresses you may have. A unified effort to boost your finances is often the best way forward. If and when the time comes, you may want to seek professional advice to help achieve your financial goals.
Harriet has specialised in personal finance journalism for over 15 years. She writes for a wide range of newspapers,magazines and websites as a freelance journalist. These include Moneywise,Investors Chronicle, Saga, The Sunday Times, The Observer, MoneySavingExpert, Zoopla, House Beautiful, and many others.
CTF accounts were created by the government in 2002 to kickstart and encourage parents to save for when their children turn 18. The government initially deposited money into the account and then the parents or guardians of the child were able to add to it on the child’s behalf, up until they turn 18. There is a limit as to how much you could deposit each tax year which has increased from £1200 in 2002, to £9000 in 2020.
A CTF is also tax-free. Yes, you heard right, tax-free! This means that whatever money you deposit won’t be taxed when it’s withdrawn in the future. Once the child has turned 18, they will have access to the money to use they wish. This is when the product ‘matures’.
When will my Child’s CTF mature?
CTFs begin maturing in September 2020 when the first child reaches 18 years of age.
When a child turns 16, they can take control of the CTF if they wanted to. They can change how their money is invested and change provider by transferring their account and signing up to a new provider. If the child decides not to manage their fund, it remains with their parent or guardian until their 18th birthday.
Who was eligible for a Child Trust Fund?
CTFs were set up by the government for children who were born in the UK between the 1st of September 2002 and the 2nd of January 2011.
Types of CTF accounts
There are three different types of Child Trust Fund accounts that parents could choose for their children. These were Stakeholder, Shareholder and Cash accounts.
• Stakeholder account - This allows you to own a percentage of shares within a company. With a Stakeholder CTF, any money which is still invested in shares when the CTF matures will be sold automatically and the cash will be passed on to the child.
• Shareholder – This account allows you to leave a contribution of the money invested into the stock market. By investing into the stock market, your money could potentially grow or fall depending on the outcome of your shares.
• Cash account - The Cash CTF account is where you can leave any contributions, providing they don’t go above the yearly maximum allowance and earn interest on it. This tends to be the safest and most popular option.
Can I still get a Child Trust Fund?
The government stopped offering Child Trust Fund accounts after 2011 and they replaced them with the Junior Individual Savings Account (JISA). However, anyone who still has a CTF can carry on depositing money into their account until their child turns 18.
JISAs are also a tax-free savings account for children and many of the same rules apply. However, if you were to open a JISA today, the government does not contribute and the only money that goes into the JISA is the money which you deposit.
What can my child do with a matured CTF?
Once a child turns 18 and the CTF matures, they have a decision to make about what to do with the money. But what are their options?
• Celebrate and spend - As the money is now theirs, they can spend it however they like!
• Become a savvy saver - Some children may choose to carry on saving their money in a cash savings account or cash ISA. Both will offer interest on the money and they are often easily accessible, so the money can be withdrawn at any time.
• Invest it - Although most 18-year-olds won’t be familiar with investing, they could invest their savings in a Stocks & Shares ISA to potentially grow their money further. We would always recommend that if they were to invest their money, they do so for at least 5 years. It’s also worth remembering that when investing your money is at risk and you may get back less than you put in.
That’s our round-up on Child Trust Funds. Did you know that it’s been estimated that more than one million child trust funds are ‘lost’ and haven’t been claimed? In most cases, this is due to HMRC opening the account because the child’s parent or guardian failed to do so. If you think your child may have been eligible, it's worth checking. More details on how to find a lost CTF can be found on the HMRC website.
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With any investment your capital is at risk, investments can go down as well as up