You are here

Lockdown is giving people a crack at extreme saving

Pubs are closed, shops are shuttered and some consumers in England are using their second, shorter confinement as a way to build wealth

BT_20201121_MLSAVINGS21_4334489.jpg
England's second lockdown is shaping up to be different that the first, given that restrictions are slated to be in place for less time. And the lockdown falls during the holiday-shopping season.

WHEN Britain entered its first lockdown in March, Laura Purkess went into extreme savings mode. The 23-year-old retreated from London to her mother's house in the English countryside and slashed her spending. She didn't pay rent, buy new clothing or splurge on a summer holiday. She and her partner socked away so much money - £32,000 (S$56,940) - that they ended up with enough for a deposit on a home of their own.

Now, England is back in a second lockdown and Ms Purkess is going for a repeat. She is using the four-week closure of pubs, restaurants and shops that began this month as an exercise in the art of high-intensity saving. She's determined to put aside enough to furnish and decorate her new place by the time she's ready to move in at the end of the year.

The Covid-19 pandemic has pummelled economies across the globe. But in Britain, the United States and several other countries, researchers are finding that some people - through a combination of government support, luck and determined prudence - have ended up better off. British households saved an average of £17.3 billion per month between March and June, according to the Bank of England. Many redirected their income to whittling down credit-card and personal-loan balances by an average of £4 billion a month during that period.

England's second lockdown is shaping up to be different that the first, given that restrictions are slated to be in place for less time. And the lockdown falls during the holiday-shopping season. But wealth managers say people currently in England - and, frankly, anyone around the world facing tighter restrictions - can take advantage of a short, forced pause to improve their finances. Here are their suggestions.

Use the deadline to your advantage

Your feedback is important to us

Tell us what you think. Email us at btuserfeedback@sph.com.sg

Like many national leaders, UK Prime Minister Boris Johnson faced intense pressure to set an end to this lockdown. Even though it may be extended, the scheduled exit on Dec 2 provides English residents with more clarity than they had the first time around. The current full lockdown only applies to England, but not the rest of the UK: Scotland, Wales or Northern Ireland.

Savers can use England's deadline to their advantage, experts say. As with any difficult task, knowing when it will end can help motivate people to crank up the dial on financial behaviours that would be more difficult long term.

"It makes it psychologically easier for everyone," said Laith Khalaf, a financial analyst at AJ Bell plc, a Manchester-based digital brokerage.

Consider this a natural, no-spend November

One trend among those looking to save money lately has been to challenge themselves with "no-spend" months. Here's a natural opportunity for people to participate, by cutting their spending - often in extreme ways - for four weeks.

Abigail Metcalfe has taken a cue from this playbook. The 28-year-old business manager in London has vowed to cut her spending this month by making all of her food from scratch. She is also not taking public transport or private cars. The money she saves will go straight into her savings.

"As with dieting, a short sharp shock can deliver fast results," Mr Khalaf said.

Comparison shop

With many offices closed and commute-times curtailed, consumers may have time to evaluate recurring charges such as phone, gas, electric, Internet and other utility bills. "The savings you can get are huge," said Ben Yearsley, an investment director at Shore Financial Planning. He recommends looking up other providers' offerings as well as deals your current provider might be using to lure new subscribers. Threatening to leave, he noted, can lead to discounts.

Aaron Steel, a 25-year-old financial adviser from London, realised he was spending £20 a month on a television subscription he didn't even need, because he had most of the channels already through a different provider. He also saved £10 a month by switching to a different mobile-phone provider. Both of those changes will save him £360 a year. In all, Mr Steel says he has managed to save an extra £7,000 on top of his normal monthly savings amounts since March through a combination of budgeting, saving more and changing providers.

"A benchmark for me to say to my current providers is: 'If you can match X pounds with provider Y, I won't need to leave,'" he added.

Resist the urge to holiday splurge

Unlike the last lockdown, this shorter stretch is hitting just as consumers are preparing for the holiday shopping season. With retailers keen on attracting online shoppers with bargains, the temptation to spend will mount during the next few weeks. And experts say consumers should be mindful that retailers are entering the second lockdown savvier than they were in the spring.

"In the first lockdown, all spending basically shut," said Becky O'Connor, the head of pensions and savings at Interactive Investor Ltd, an online investment service. "This one, marketing departments are prepared. They will be thinking of ways to keep people spending from their homes rather than in the shops, so there could be more temptation to spend."

To avoid such temptations, it's crucial to stick to a predetermined budget, Hargreaves Lansdown personal finance analyst Sarah Coles said. "If you wait to see what comes along and play things by ear, you don't have a hope of staying on top of the cost of Christmas," she added. She recommends seeing if you can (politely) take anyone off your Christmas shopping list, considering a Secret Santa or agreeing only to buy gifts for children in a family.

Pare debts - and possessions

More than half of British workers worry about money at least once a week and more than a third lose sleep over how to make ends meet, according to Nudge, a firm that supports financial well-being. One way to address such anxieties is to draw up a detailed budget, pay down debt and sell what you don't need.

Tom Batting, the founder of Obby, a provider of education software, says he's decided to part with his beloved vinyl turntable for about £200, as well as old iPhones, tablets and headphones, to help pay bills, including credit-card balances that have been rising this year. His wife, a schoolteacher, is tutoring via Zoom to bring in some extra money.

People struggling with debt might consider turning to charities that can help them renegotiate or delay debt payments. StepChange, a debt charity, is offering a Covid Payment Plan to help consumers struggling with debts incurred as a result of the pandemic. Developed in consultation with Britain's Treasury and the Money & Pensions Service, the programme will provide qualified debtors with more time and forbearance to resume full payments on their obligations, in some cases up to a year.

David Smith, a 52-year-old chef from Chichester, lost his position at a hotel during the first lockdown. Now as the second one spurs a fresh round of uncertainty, he's enrolled in a StepChange plan that will let him make nominal payments until next June.

Try something new

Those in the fortunate position of having extra cash face a big question: What to do with it in a world where interest rates are at rock bottom and may go negative?

New offerings on the market include apps that help consumers save and invest in small increments. One app called Plum uses artificial intelligence to help users set aside the optimal amount of savings every few days, which is then saved in an interest-bearing account or invested.

Others offer depositors a way to maximise interest rates. Raisin, a Berlin-based "savings marketplace", matches European depositors with banks offering the best interest rates across the continent. So an account holder in the UK can choose from more than a dozen lenders that might pay higher interest, including one in Malta. The accounts are covered by deposit insurance. Raisin has a UK-domiciled unit so Brexit should not affect account holders.

Like the first, the second lockdown in England appears poised to change financial behaviours from saving to investing in the short term. It remains an open question how long people will be able to continue these behaviours when economies reopen.

"It's the big question: What happens to that cash as soon as lockdown finishes?" said Liam Delaney, head of the psychological and behavioral science department at the London School of Economics. "It will be a while before you see people rush to restaurants again." BLOOMBERG

BT is now on Telegram!

For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes