We have talked previously about how disposable income, which is basically the money you have left at the end of the month, after all your bills are paid, is on the rise in the UK. More than a good news about the state of the economy, I think it may reflect more that people are making cuts to their monthly spending, because they are worried they may lose their jobs at any time. When you once used to go work for a company and stay there until you retire, or leave to improve your career, nowadays you are grateful just to be employed and wondering how long that may last.
But there is another interesting piece of data which I found quite surprising. This recent study from Scottish Friendly shows that unemployed people have more disposable income than part time and zero-hour workers. How is it that unemployed people have more money left after expenses than partly employed people? Maybe because when you work on a zero-hour contract, you have no control on the amount of money you make every month. So you have to be extra careful, but when it is a really low month, you may be making even less than an unemployment cheque. And if you have little savings, you spend any little money you have trying to cover one essential expense after another. When your income is unreliable, it becomes hard to budget. So on a good month, you may want to stock up on groceries, so you have something to eat if the next month happens to be lean. You may fill up your tank, or treat yourself to a few extras you know you may not be able to afford the following month.
Whereas when you are unemployed, you know you will only have that small cheque to live on. So from the day you receive it, you make as many cuts in your budget as possible, and wait until you become employed again to spend on non essentials.
The study reports that unemployed people have 9.3% of their income left over once essentials are paid for, while zero-hour workers are left with only 7.8%. Part-time workers are just above with 7.8% of disposable income. That means around £174 for the unemployed, against £130 for the other two categories of workers.
Scottish Friendly shares concerns of those results being a disincentive to work, and they sure have a point. Why would you want to get up and go to work, to have less money left at the end of the money than a person whose only job is to go collect an unemployment cheque? And vice versa, how do you find the motivation to look for a job, if the chances are you’ll be worse off in terms of disposable income? Sure, when you work, you probably increase your standards of living, you may need a car to get to work, formal clothes, or even have to pay for child care. But all those work related expenses are not necessarily a proof of better living. I know many families who choose to have a stay at home parent because of this economy. The second spouse would be happy having a career, but considering the poor opportunities, they are much happier spending time with their children than going to a low paying job and barely adding anything extra into the family’s savings account at the end of the month.
The silver lining of the story is that the UK is developing a savings culture, and that will always come handy if things get worse on the job market, as people will be able to weather the bad economic climate more easily.
This article was written in collaboration with Scottish Friendly.
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