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- High earners were nearly 2x more likely to miss a payment on a loan or short-term debt in 2022 than those on a low income.
- They were also nearly 3x more likely to miss a mortgage payment; more than twice as likely to make an emergency withdrawal from their pension; and nearly twice as likely to use their savings to cover costs.
- 50% of people globally saw their disposable income decrease last year.
Popular wisdom would have you believe that high earners are better with money: they manage it better, invest it better and are better prepared for tough economic times. But data from 2022 suggests this assumption may be wrong.
Moneyzine.co.uk can reveal that people in the ‘high income’ bracket - who earn more than twice the median salary - were actually far more likely to miss a payment in the last 12 months - along with various other struggles.
2022 was tough on personal finances
A recent study looked at the effect of 2022 on personal finances - specifically on spending behaviour and disposal income. It found that 50% of people across the world saw their disposable income decrease in the last 12 months - including 64% of Britons.
Britain is followed by Italy and Poland (57% each), France (55%), Canada (54%) and Mexico (52%). Faring better were India and Hong Kong, with just 36% and 40% of people respectively reporting a decline in their disposable income.
Projections for the coming months are slightly better, it is still predicted that 45% of people will see their disposable income dip again this year. But the data becomes most striking, however, when it is broken down into income brackets. Using three groups - lower, middle and high earners - we start to see a strange story emerging.
High earners struggle with payments
Unsurprisingly, lower and middle income earners were more likely to see their disposable income decrease in 2022. And those in the high income bracket were nearly twice as likely to see their disposable income increase.
Yet the data also reveals higher earners’ struggles in 2022. Those in the high income bracket were nearly twice as likely to use savings to cover their expenses than those in the lower income bracket. They were also more than twice as likely to cash in on a pension or retirement plan; more than twice as likely to miss a payment on a short-term debt or loan; nearly three times as likely to miss a payment on a mortgage or home loan; and more than three times more likely to use an equity release to cover expenses.
Lifestyle grows with income
These findings appear counterintuitive: high earners have more money, have been less negatively impacted - yet struggled far more to cover their expenses in 2022. The best explanation is simple: high earners are more likely to be locked-into an expensive lifestyle which, when costs suddenly rise, leaves them financially vulnerable.
Of course, this doesn’t mean high earners are worse off. They still have more security than those in the lower income bracket - they have more savings and assets to lean into. But these findings do suggest that simply expanding your lifestyle in-line with growing earnings is a risky choice.
2022 was a tough year for most people financially, and this data reflects that fact. But it also points to an important lesson in personal finance: high earnings are not enough to achieve real security. Instead, that involves mature decision making, careful risk assessment - and a high degree of self-control.Jonathan Merry, CEO of Moneyzine.co.uk
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