The Index, which measures households’ overall perceptions of financial wellbeing, dipped from 44.7 in the second quarter to 44.0 in Q3.

Despite fading in Q3, the pace of decline remained slower than at any other time since the onset of the COVID-19 pandemic, and a far cry from the spring of 2020, in part due to improved trends around job security and income.

Households also recorded renewed pessimism with regards to their financial outlook over the next 12 months. At 49.2 in Q3, this index was down from 50.3 in the previous quarter. The youngest age groups (between 18 and 34 years old) bucked the overall trend, remaining upbeat on average (index at 56.2, up from 55.7).

The pandemic has led to changes in long-term financial planning when it comes to supporting their families, with around one in 10 (9%) having increased the scope of their long-term financial planning to include more generations as a result pandemic.

Almost three quarters (73%) of UK households surveyed considered preparing for the future financial wellbeing of loved ones in other generations to be important, with more young people aged 18-24 of this view than any other age group (82%). Nearly one in four households surveyed (24%) would not consider other generations (such as children or parents) in their financial planning at all.

Of those households which have increased the scope of their long-term financial plans, more than one in four (27%) were not previously including other generations of their family in planning before the onset of the pandemic. This suggests a considerable change in behaviour, with those aged 35-44 recording the largest shift in favour of planning financially for future generations.

Jackie Leiper, pensions, stockbroking and distribution director, Scottish Widows, said: “UK households recorded slightly weaker trends as the post-lockdown recovery began to subside and living costs surged. Overall financial wellbeing and cash available to spend fell at slightly quicker rates than in the second quarter.

“However, our long-term financial planning trackers highlighted a wave of positive developments in Q3. Around 10% of households are now considering intergenerational planning, which suggests that COVID-19 has made more families think about how important it is to consider being financially prepared for the unexpected.

“A spark of good news also came with the reopening of the UK economy continuing to drive workplace activity too, while incomes from employment rose for the first time since the start of the pandemic.”

Positive news during the third quarter came from the labour market as UK households experienced improved trends with regards to both job security and income from employment. For the first time since Q1 2020, households’ income from employment rose over the quarter.

At the same time, business activity continues to rise steeply, according to UK households. The rate of growth remained close to the survey record high recorded in Q2.

This combination of rising activity and greater incomes led some households to take an optimistic view with regards to job security – with the lowest level of pessimism recorded since the second quarter of 2019. Those in the youngest age group (18-34) recorded by far the strongest trend for job security in the third quarter of 2021.

Q3 data also pointed to a further fall in the amount of cash UK households have available to spend. The rate of decrease quickened slightly on the quarter and was sharp, highlighting that rising living costs have partly offset increased employment income.

As a result, household savings declined at the fastest rate since the end of 2020, with only the highest earners recording a rise over the third quarter.

Meanwhile, UK households registered a sustained fall in demand for unsecured credit, such as overdrafts and credit cards, with the decrease the strongest on record. The focus remained instead on paying down debt, which declined solidly again in Q3.