As the cost of living rises and mortgage rates climb, many people find themselves transitioning from a comfortable standard of living to facing poverty. Traditional financial planners, who typically focus on managing and saving disposable income, often fall short in these situations. Their strategies usually assume that earnings are fixed and that spending can be reduced to create excess income for saving. However, this approach is impractical for those whose disposable income has evaporated due to increased mortgage payments and living costs.
Holistic financial planners, on the other hand, offer a different approach. Instead of merely focusing on savings and investments, they emphasise earnings growth and the development of human capital. This involves identifying and leveraging one's skills, knowledge, connections, and character to create additional sustainable livelihoods. Holistic financial planners help individuals discover what they are good at, what they love doing, what the world needs, and what they can be paid for.
The Current Landscape
A recent report from the Institute for Fiscal Studies, funded by the Joseph Rowntree Foundation, revealed that approximately 320,000 people were pushed into poverty by the end of 2023 due to rising mortgage rates. The report highlighted that many households remortgaging or taking out new mortgages since 2022 have experienced significant falls in their disposable income.
Moreover, the report pointed out that official data does not properly measure mortgage interest payments, leading to an understatement of poverty statistics. By December 2023, official figures will likely only capture about two-thirds of those affected, equating to around 230,000 people.
Sam Ray-Chaudhuri, an IFS research economist and author of the report, noted that rising mortgage rates are having a substantial impact on household living standards, but this is not accurately reflected in official income data. This mismeasurement has resulted in an understated number of people in poverty, which is set to worsen in future data.
The Role of Holistic Financial Planners
In contrast to traditional financial planners, holistic financial planners focus on earnings growth through the development of human capital. They assist clients in identifying their productive assets and leveraging entrepreneurial opportunities to create additional income streams. This approach is particularly beneficial for those facing financial hardship due to rising living costs and mortgage rates.
Holistic financial planners provide low-cost, accessible solutions that empower individuals to become their own financial advisors. For the price of a weekly latte (see below), individuals can access tools and guidance to develop new skills, build valuable connections, and explore entrepreneurial ventures. This approach not only helps individuals navigate their current financial challenges but also equips them with the capabilities to achieve long-term financial security and fulfillment.
The Impact of Rising Costs
The IFS report also warned that poverty statistics do not adequately measure the impact of rising mortgage rates, as they model interest payments based on average rates rather than actual payments. This mismeasurement resulted in an understated poverty count by 70,000 in 2022/23, with the figure set to rise to 150,000 as more fixed-term mortgages end.
Furthermore, evidence suggests that rising mortgage rates have pushed some adults into financial hardship, with those remortgaging in 2022 being 2 percentage points more likely to fall into arrears on bills than those who had not. This indicates that once all households have remortgaged, the number of adults behind on bills could increase by 370,000.
Conclusion
Holistic financial planning offers a transformative approach for those struggling with the rising cost of living and mortgage rates. By focusing on developing human capital and creating sustainable livelihoods, holistic financial planners can provide practical solutions that traditional financial planners often overlook. As we navigate these challenging times, it's crucial to look beyond conventional financial advice and embrace strategies that promote long-term financial resilience and well-being.
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Useful Resources:
Money Helper: Money Troubles. If you’re having problems with debts, need to make a complaint about a financial service or are worried about being scammed, this section will help you.
Mortgages advice guides. Whether you want to learn how mortgages work or are actively searching for a deal, our mortgage guides will help you find the best solution for your needs.
MORTGAGES & HOMES: Guides and tools to help you get the best deal on your mortgage.
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