Why UK Households Are Finding It Harder to Build Lasting Wealth

For decades, building wealth in the UK was seen as simple: buy a home, save regularly, and rely on rising property values and pensions. However, in today's economic climate, many families feel stuck despite their hard work. What has changed?

Stagnant Wages vs Rising Costs

Since the 2008 financial crisis, real wages in the UK have remained largely unchanged. Meanwhile, costs for essential items like housing, energy, food, and childcare have soared. In fact, between 2008 and 2021, UK household spending on essentials increased by over 30% (look at your shopping bill). This has left families with little left over for savings or investments. Even those earning decent salaries find themselves battling rising living expenses, with 60% of households feeling financially squeezed.

Housing Market Distortions

Traditionally, property has been the bedrock of wealth in the UK. Yet today, soaring house prices have created barriers for younger generations. For instance, the average first-time buyer in London now needs a deposit of around £90,000, making homeownership feel unattainable. For those renting, high monthly payments consume a significant portion of their income, often exceeding 40%. Homeowners are not immune either; rising mortgage rates mean that many are spending a larger percentage of their earnings just to maintain their homes instead of building wealth.

A row of terraced houses showcasing the challenges of the housing market

Weak Savings and Investment Culture

The UK has one of the lowest savings rates among developed nations, currently sitting at around 6% of household income. It is also not surprising, as interest rates for savings are usually low, so there is no encouragement to save. Many families turn to short-term cash savings, leaving long-term wealth building untapped. A survey indicated that nearly 70% of adults claim they don’t invest due to a lack of knowledge about financial markets and worry about the busts of reputable companies. This distrust, combined with stagnant income, prevents families from utilising investment opportunities that could provide compounding returns.

Debt Dependency

Consumer debt is at an all-time high in the UK, with the average household owing nearly £9,000, excluding mortgages. Popular financing options, like credit cards and “buy now, pay later” schemes, can cover immediate expenses, but they seriously undermine long-term wealth. Monthly repayments consume resources, reducing available income for savings and investments. The result is a cycle where debt perpetuates financial instability. However, it is important to bear in mind that many people rely on short-term debt because their incomes are insufficient, and certain "needs" need to be met.

Uncertain Retirement Prospects

While auto-enrolment has increased pension participation, many contributions still fall short. A surprising 42% of people surveyed have less than £5,000 saved for retirement. With the state pension age increasing and future state pension funding facing uncertainties, countless households are left unsure about their retirement plans. This uncertainty can discourage families from making long-term investments. If you are reading this today, start putting something away for your retirement. There are options out there, you can start with your bank. Most importantly do your research and act now.

Final Thoughts

Building lasting wealth in the UK has become increasingly complex. Stagnant wages, rising living costs, high property prices, a lack of savings, and growing debt all weave a tangled web that many families find hard to escape. To break free from these challenges, individuals must prioritise financial education and consider alternative investment strategies. Embracing these changes may help households navigate the current landscape and begin the journey toward financial freedom. On the other hand, the government must find other ways of generating income beside taxes so that more people in work can see the benefits of working.

A piggy bank representing savings and investment challenges