For many of us, the beginning of September marked a return to more normal routines. While that was welcome, it’s still difficult at present to get a true reading of where businesses and people stand in terms of their financial position.
For the business community, in almost all sectors, it’s been a year and a half of uncertainty and an inability to plan as far ahead as we might like. So it’s forced firms and business leaders to be flexible, agile and adaptive to an ever-shifting set of circumstances and responsive to new and challenging demands.
Some firms have struggled, while others have found a way to move forward. Others still have thrived. How they have been able to respond will depend in many cases on the sectors they have been operating in and the robustness and adaptability of their strategy.
In our industry, the Financial Conduct Authority has carried out five coronavirus financial resilience surveys of financial advice firms. The aim of the surveys is to get an accurate view of the impact of Covid-19 and limit the harm to consumers. This is to be welcomed but with the caveat that there are limits to what we can learn when we’re still not out of the woods.
The global financial and economic climate has been so different from the norm that the financial position that many businesses find themselves right now may not be a truly accurate reflection of where they are, or one which they can extrapolate from with any real certainty just yet.
Firstly, there’s the furlough scheme. With a reported 1.9 million people still on furlough, the end of this month sees the scheme finally come to a close after repeated extensions and more and more money pumped in to keep those who needed it afloat throughout a sluggish economy.
The scheme will have allowed many businesses to keep trading but at the same time it will have obscured the reality of their commercial position, one which will become clearer when the true costs of running a business, like adequately servicing customers and keeping enough staff on the payroll, re-appear.
Even for those companies who haven’t used the furlough scheme, many have been operating in a bubble of decreased travel and expenses costs, coupled with reduced office maintenance and administrative expenditure. Google, Amazon and HSBC have each reported cost cuts of more than $1 billion for example, citing Covid-19 as a key contributor.
What has been true for business, also goes for personal finance, where we can see similar examples of non-regular financial behaviour. Whilst the pandemic has created some real financial hardship, it has also meant a large drop in discretionary spending for many people, as holiday and entertainment costs have all been reduced.
The UK’s households savings ratio – a barometer of household savings as a proportion of disposable income – hit a record high of 27% in June last year, and has remained at historic peaks since. People are spending less, repaying debt (£16bn repaid on UK credit cards and loans in 2020) and saving more. It’s also had an impact on retirement plans, with one fifth (22%) of British workers over the age of 50 bringing forward their retirement plans as a direct result of the pandemic.
When we next undertake cashflow modelling with clients, the question will be whether they are going to retain some of this acquired thriftiness, if they fall back into old ways, or if it’s somewhere in middle. This last eighteen months will certainly be a period we can use to show it’s possible to materially change our spending habits and in turn the huge impact this can have on our long-term financial health.
For example, if we compare the amount of money people now believe they will need in their retirement with the number of two years ago, it could well be a lot smaller; the allure of travelling the world may have lessened and their everyday lifestyle may just require less money than they were previously budgeting for.
Taking time to reset
We’re all – businesses and people – currently still in a period of limbo, where it will be hard to define the true shape of a post-Covid world for a little while yet.
Businesses will need to revisit their financial and operational resilience when the dust finally settles and clients will need time to reset and find their new level.
Whatever the result, if there is significant and lasting change, we will be ready to adapt to what it means for our relationships with our clients and our industry as a whole.