COVID-19 threatens to disrupt Christmas spirit, reveals survey on personal finance in UK

From a personal finance perspective, COVID-19 could be the proverbial grinch that steals Christmas in 2020.

It stands to reason that the personal finance woes typically associated with the pandemic, including job loss and instability in the financial markets, would affect consumers’ spending habits around the holidays. Indeed, the British unemployment rate recently hit its highest level in three years. Yet COVID-19 has also spurred unprecedented government financial assistance for businesses and individuals.

Does the government support offset consumers’ personal finance concerns, or is the pandemic’s destabilising impact the overriding factor shaping spending behaviour?

According to new survey data compiled by uk.Investing.com on the effect of COVID-19 on personal finance in the UK, the pandemic will in fact lead to more cautious consumer behaviour this holiday season. Approximately 80 percent of the poll’s 2,147 respondents said they would decrease their Christmas spending, including 14 percent who stated they “won’t be able to purchase anything this year.”

“The upcoming holiday season will likely be very different for families across the UK when compared to previous years,” said Jesse Cohen, senior analyst at uk.Investing.com. “Not only will holiday gatherings be smaller, but the economic impact of the COVID-19 pandemic will mean that holiday shopping and spending on gifts is out of reach for many Britons this year.”

“It seems evident that without additional stimulus support, the economy - and High Street retailers - will continue to struggle with the negative effects of the ongoing health crisis,” Cohen added.

The pandemic’s dramatic impact on personal finance is also evident through our finding that only 35 percent of Brits would currently choose to pay off a £1,000 bill for an emergency from their savings. Other respondents would take on some form of debt — 18 percent would finance the bill with a credit card and pay it off over time, 16 percent would borrow from friends or family, and 6 percent would take out a personal loan — or reduce spending on other things (15 percent). This indicates the long-term adverse impact of COVID-19 on Brits’ overall financial health, or at least their expectations of impending financial hardship or a lack of wiggle room.

“Many households across the UK have experienced some sort of serious financial trouble due to the coronavirus outbreak, leaving millions failing to meet basic needs, including food, rent, and utility bills,” Cohen stated.

A more cautious approach to Christmas spending as well as the choice not to dip into savings for emergencies both represent behaviors which are reinforced by respondents’ other financial outcomes during the pandemic. Almost two-thirds (64 percent) of Brits reported that the pandemic has caused some form of financial loss, with 23 percent describing their loss as “serious” and 41 percent as “minor.” Eighty-three percent are spending less (including 48 percent “much less”), which closely aligns with the 80 percent who plan to decrease their Christmas spending.

Regarding the extent of their financial loss, 58 percent reported losses of less than £25,000, including 42 percent under £10,000. Only 7 percent experienced a loss of more than £25,000.

In another more encouraging development, 72 percent of Brits said their employment situation hasn’t changed during the pandemic, and 9 percent said they lost their job but were able to secure new employment. Seventy-four percent aren’t collecting government benefits.

However, there seems to be a negative view of the benefits landscape, with the number of respondents who said government benefits aren’t adequately addressing their financial needs (15 percent) tripling those who felt that those benefits have provided sufficient support.

Ultimately, the psychological effects of COVID-19 on personal finance could be as significant as the pandemic’s actual impact on individuals’ bottom line, or even potentially more significant. Seventy-four percent of Brits said the pandemic’s financial implications have made them more anxious, exceeding the 64 percent of respondents who reported tangible financial loss.

Further, our respondents are bracing for the continuation of these financially challenging times, with 79 percent expressing some level of concern about their finances for as long as the pandemic persists.

“Despite the challenging times ahead, there is light at the end of the tunnel,” Cohen said. “Positive announcements on the vaccine front from the likes of Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA), and AstraZeneca have boosted hopes that life could return to some sort of normalcy in the months ahead.”

Considering the pandemic’s impact on consumers’ mindset as well as on their actual spending patterns, COVID-19 poses a serious threat to disrupt this year’s Christmas spirit. Let’s hope that a vaccine or other breakthrough can restore the holiday cheer in time for December 2021.