4 impactful ways Covid-19 could have affected your clients’ finances

When the first Covid-19 lockdown in the UK was imposed in March 2020, many people believed that the restrictions would last just a few weeks. Having never experienced a pandemic in our lifetime, it’s understandable that we might have underestimated the long-term impact that Covid would have on our lives.

Three and a half years on, the worst of Covid-19 now seems to be over. While the virus is still a threat to our health, it seems things are under control, and normal societal activities have resumed in full.

Despite an overall return to normality, though, there are some Covid-related changes that appear to have stuck – including financial factors that affect our daily lives.

So, here are four impactful ways that Covid-19 may have affected your clients’ money, and how working with a financial planner can help them adapt to the “new normal”.

1. Rising interest and inflation

Although the Covid-19 virus itself did not push interest and inflation rates up, the dip in economic activity during lockdown did prompt the government to manually “inflate” the economy.

Indeed, the furlough scheme, alongside other measures, was introduced in 2020 to help businesses continue to pay employees. Consumers could then more easily fund their mortgage payments, rent, bills, goods, and services – all of which kept the economy afloat during the crisis.

Unfortunately, the knock-on effect of this process (known as “quantitative easing”) meant that when the economy reopened, inflation began to rise. Coupled with the Ukraine war and the continued lockdowns in China, it comes as no surprise that inflation peaked at 11.1% in October 2022, the Office for National Statistics (ONS) reports.

While inflation is now in decline, standing at 6.8% as of July 2023, inflation may have diminished the spending power of your clients’ money for an extended period.

Plus, after slashing the base rate to 0.1% in 2020 to fight stagnation, the Bank of England (BoE) then began increasing it in line with inflation in 2021. As of August 2023, the base rate is 5.25%, making mortgages and other forms of borrowing more expensive on the whole.

All this points to some financial challenges for your clients. They could have saved and invested less in the past year than they’d hoped, and those approaching retirement may worry about making their money last while inflation and interest rates are high.

2. The popularity of hybrid working

While the majority of public spaces were closed to prevent the spread of the virus, many workers began working remotely overnight. Some believed this wouldn’t last, while others praised this new routine, saying it improved their health and helped to cut costs.

Now, offices are open again. Despite the availability of public workspaces, though, the British Safety Council reports that 44% of people were working in a “hybrid” model between September 2022 and January 2023.

Full or partial remote work is here to stay, it seems – but what does this mean for your clients’ finances?

On the positive side, your clients could:

• Save money on fuel or public transport costs
• Cut their food budget by cooking more from home
• Spend less on work-appropriate clothing, shoes, and cosmetics.

There are some financial downsides to working fully or partially from home, though. Your clients’ energy bills could increase significantly if they spend more time at home, particularly when it’s cold.

Additionally, even after Ofgem lowered the Energy Price Cap (EPC) to £2,074 for many households in July, your clients could still be concerned about how working from home permanently might affect their finances.

Fortunately, we can help your clients weigh up their options and create a financial plan that works for them. Assessing their current lifestyle and future goals, together we can form a strategy that leaves them with financial peace of mind.

3. A shift towards environmental, social and governance (ESG) investing

During the height of Covid-19, our attention was turned towards global solidarity, and with this shift in focus came a change in the way investors prioritise funds.

ESG investing describes the process of selecting funds that meet certain “sustainability” or “responsibility” criteria. These can range across many sectors, from “clean energy” funds to companies that champion gender equality and everything in between.

Crucially, despite the market volatility that spooked investors during lockdowns, Citywire reports that ESG funds saw an inflow of $45.6 billion in Q1 2020 alone. Plus, the report reveals that the five top-performing funds in Europe during that quarter were all ESG-related.

After this, according to Funds Europe, 44% of investors made ESG funds a priority over returns in 2021. This marks a significant change in investor attitude – but according to the same study, this number reduced to 38% in 2023.

Despite this recent dip, your clients may have become interested in sustainability during Covid-19. As a result, they may be more inclined to invest in ESG funds than before.

If so, we can help them pursue their financial goals and manage their investments in line with ESG factors that lie close to their hearts.

4. Higher levels of financial anxiety

Alongside the worry that came with Covid-19’s threat to public safety, financial anxiety seems to have risen in the past three years.

Indeed, the economic impact of Covid-19, along with other global factors, led to what is now known as the “cost of living crisis”.

While many earners made record savings during lockdown, the Guardian reports, the knock-on effects of the pandemic have left a less positive mark on many people’s finances, and in turn, their mental health.

A new study, conducted over two weeks and published by the Mental Health Foundation (MHF) in May 2023, found that:

• 20% of participants felt worried about debt
• 32% of adults said that being able to pay the bills had made them feel anxious.

Mark Rowland, chief executive of the MHF, said, “the cost of living crisis has exacerbated both financial strain and poor mental health”.

Sadly, no matter what your clients’ situation may be, the events of the last three years could have put them under financial pressure. But they don’t have to undergo this pressure alone; meeting with a financial planner can bring immense peace of mind as your clients continue to work through these challenges.

We can help your clients to:

• Assess the overall impact of Covid-19 and the cost of living crisis on their wealth
• Review their retirement plans in response to the above factors
• Support their children as they reach important milestones
• Protect their wealth from the impact of unexpected health events
• Create a robust plan for the future that can adapt to new challenges when they arise.

Our financial planners have decades of experience in helping people like your clients make their dreams a reality.

Get in touch

We’re here to advise you and your clients on all aspects of financial planning, no matter what is going on in the world.

If you have clients who could benefit from professional guidance, please get in touch. Email enquiries@prosserknowles.co.uk or call 01905 619 100.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it. Buy-to-let (pure) and commercial mortgages are not regulated by the FCA. Think carefully before securing other debts against your home.