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Start saving at 25 for 30 years of retirement

The next generation face being in their 50s before they have paid off their student loans and in their 60s before they are mortgage free, research has shown today.

The Scottish Widows study argued that rising life expectancies, combined with people being saddled with large debts earlier in life, mean that today's children should start saving for their retirement at the age of 25 if they want to enjoy a comfortable old age.

Economist Steve Lucas argued that financial pressures from university and housing costs will mean that the next generation will only be able to afford smaller pension contributions, meaning they need to start saving from around 25 years old to prepare for 30 years of retirement.

A fifth of households have no emergency savings

A fifth of households said they have no emergency cash while another 12 per cent said they have less than £250 for a rainy day.

It is generally recommended to build up a minimum of three months take-home pay as a "salary cushion", typically £5,756.

Some 28 per cent of those who took part in the survey said they would be unable to cover rent or mortgage payments if they unexpectedly lost their income.

One in 10 said they would be forced to rely on a credit card, personal loan or an overdraft.

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Savings would run out in five days for many families

Almost a third of families have savings which would only last for five day Credit: Tim Ireland/PA Archive/Press Association Images

Almost a third of families have savings which would last just five days if they were faced with a financial emergency, research has found.

Of those surveyed, 31 per cent had less than £250 put aside as a safety net, three per cent higher than in a similar study from last year, HSBC said.

For the average family, monthly outgoings are £1,669 - just under £55 a day - which would see savings of £250 savings run out five days.

How much should you earn to make a decent living?

Twenty-one detailed focus groups with ordinary people from different kinds of household (such as families with children, pensioners and single people) had detailed discussions about the necessary elements of a household budget for each family type.

Families should have an adequate diet and meet basic needs Credit: Julien Behal/PA Wire

Experts looked at these budgets to ensure that they provided an adequate diet and met basic needs like keeping a home warm. On this basis the weekly minimum budget:

• For a couple with two children is £454.52 (benefits provide 60% of this amount)

• For a pensioner couple is £231.48, provided entirely by Pension Credit

• For a lone parent with one child is £275.59 (benefits provide 60% of this amount)

• For a single working-age person is £192.59 (benefits provide 40% of this amount)

Hourly wages needed for a minimum income standard: £8.38 for a single person, £9.39 for a couple with two children and £12.20 for a lone parent with one child.

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Soaring childcare and transport costs 'affecting families'

  • Childcare: minimum costs have risen by nearly a third. In 2008, child minders outside London charged on average £2.70 an hour; now they charge £3.50. Childcare is families single biggest weekly outgoing.
  • Transport: bus travel has doubled in price since the late 1990s which, combined with cuts to public transport, means families with children now deem a car as an essential for the first time.
  • Tax credits: cuts to tax credits have increased earning requirements substantially, more than cancelling out the benefit of higher income tax thresholds.

How much do you need for an acceptable standard of living?

A single person needs to spend £193 a week to reach a minimum standard of living.

For someone out of work, benefits will provide £85 a week, £108 short of what they need Credit: Owen Humphreys/PA Wire

A single person in work needs to earn £16,400 a year, in order to be left with £193 a week net after paying a basic rent, tax and national insurance.

A couple with two children aged 3 and 7 needs to spend £455 a week to reach a minimum standard of living.

Excluding rent and childcare £455 If neither parent works, the family will get £281 a week, leaving them £174 short of what they need.

Parents are struggling to afford childcare Credit: Edmond Terakopian/PA Wire

If one parent works, they will need to earn £34,900 a year, in order to be left with £455 a week net after paying a basic rent, tax and national insurance, and receiving tax credits and child benefit.

If both parents work full-time, they will each need to earn £18,400 a year in order to be left with £455 a week net after paying basic rent, childcare, tax, and national insurance and receiving tax credits and child benefit.

For someone out of work, benefits will provide £85 a week, £108 short of what they need.

Working families 'hit hardest'

Yet again we are seeing evidence of working families being hit hardest by a perfect storm of soaring living costs and cuts to services and crucial support, like working tax credits.

"Millions of families are struggling to get by on dwindling incomes and even when both parents work full time they each need to earn 50% above the minimum wage, in order to provide a decent standard of living for their kids.

"These figures are a warning that we could see a generation of families that have to go without essentials."

– Oxfam's director of UK poverty, Chris Johnes

Families 'struggling to pay for essential services'

People are being more modest in terms of what they think needs to be spent on participating in society, but this thrift has been outweighed by rising costs.

"Parents have not changed their view of most needs, including a nutritious diet and participation by children in activities vital for social inclusion. What has changed is the ability of many families to afford such essentials."

– Donald Hirsch, co-author of the report
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