Average annual energy bills shot up by £693 to £1,971 in April1 as the energy price cap increased. With the cap set to rise again in October, the energy crunch is significantly eroding people’s income and savings – and threatening a financial wellbeing crisis.
Runaway energy prices unfortunately hit lower income brackets disproportionately. But financial worries aren’t necessarily linked to income. Low financial wellbeing can affect anyone, and the current crisis will impact people across the wealth spectrum.
How inflation affects wellbeing
Energy price rises are part of a wider inflation crunch, which is eroding people’s income and savings further. The Bank of England expects inflation to rise to 8% this spring and perhaps even higher later in the year,2 leaving cash savings worth significantly less in real terms.
Harriet Shepherd, Financial Wellbeing Manager at St. James’s Place, says: “Everybody needs to be aware of high inflation and do something about it. For example, some people who planned carefully for retirement may have to go back to work or suffer falling living standards. Others may have to postpone their planned retirement date.”
Fast-rising prices affect wellbeing by creating uncertainty and worries, such as how long inflation will last and how it could affect future income.
“Financial wellbeing has a massive impact on mental health, so this crisis will keep many people up at night and cause them to reassess their situation,” says Harriet. “A key way to improve financial wellbeing is to try and regain a sense of control and certainty over your finances. If you don’t feel confident about your money, make a change to bring control back, or speak to an expert – such as a financial adviser.”
A good place to start is to review your overall energy use. A few simple changes could bring significant savings – and align your lifestyle with your ethical views, for example, around reducing reliance on fossil fuels and supply from undemocratic nations such as Russia.
You may already support the fight against climate change through your responsible investing stance. Saving energy in your home and through your travel habits aligns your lifestyle with these views, too.
1 Price Cap to Increase by £693 from April, Ofgem press release, February 2022
2 Will Inflation in the UK Keep Rising?, Bank of England, March 2022