Families will see the largest ëthree year fallí in their income for 35 years, according to the Institute for Fiscal Studies (IFS).
This will effectively wipe £2,000 off the annual average family income. The report by the IFS found that the average income is expected to fall by 7% for 2012-2013, compared to 2009-2010.
This is the largest fall in income for UK families since the mid 1970s and it could take until 2015 before households recover to pre-rescission levels.
The delayed impact of the recession is starting to take its toll on families and children. The IFS found that the income drop would result in the longest slump in family finances on record.
The study, which was funded by the Joseph Rowntree Foundation, also found that one in four children would be living below the poverty line in a decade. By 2020, more than 10 million children and adults will be living in poverty as a direct result of the coalitionís ¨tax and benefit reforms.
The increased rate of inflation, as well as the switch from RPI to CPI, will have a significant impact on poverty of Universal Credit.
The institute suggests that child poverty will increase by 23% and 24% for 2020 and 2012 respectively. With government targets of 5% for 2010, the increase would be the highest rate of child poverty since 2001.
James Browne, one of the authors of the report, said; ìThe previous government significantly increased spending on benefits and tax credits for families with children, and child poverty fell by nearly a quarter between 1998 and 2009, but this was still not enough for the government to hit its child poverty targets.î
If you are concerned about your childís future, now could be the time to start savings. You could set up a junior ISA or open a savings account.
Compare savings with Money Expert.