🔔 Saving more but still savings are less - a ticking time bomb

Latest stats from the Office for National Statistics (ONS) have shown that households saved marginally more in the second quarter of this year than they did in the first quarter, however the garden is by no means looking rosier. Compared to the past, we now have record low levels of savings and those records go back some way, to 1963.

According to the ONS, the ‘Savings Ratio’ - which measures the amount of disposable income that households are currently saving - now stands at 3.90%. Only three other times since the records began, has this figure been lower. This includes the first quarter of this year when it stood at 3.60%, the first quarter of last year when it stood at just 3.20% and back in the second quarter of 1963 when it stood at 3.60% and the Beatles were at the top of the music charts.

To put things into context, 2017 was a dismal year for saving - with a yearly average of just 4.20% being put aside, dropping from 6.60% in 2016 and 9.40% in 2015. 1992 seemed to be a bumper year, with households saving 14.1% of disposable income.  

But what do all these stats actually mean and what difference does it really make?

Well, at a time when we have low levels of unemployment you could argue that there is less need to have a large percentage of your income in savings. And while interest rates remain at ridiculously low levels, it’s easy to see why fewer people see the benefit of saving in the first place.

Let’s be honest, keeping interest rates at record low levels for almost a decade now, has done exactly what the Bank of England had hoped it would. It has encouraged us to spend our way out of recession and even though Mark Carney and co. have increased interest rates ever so slightly, they remain well below the levels we came to expect as the norm before the financial crisis of 2008. Basically, savers - and in particular pensioners - are paying the price of us spending our way out of trouble and keeping the country afloat.

The issue is that a country’s savings pot is a sign of its strength, so you could argue that having low levels is not great with Brexit just around the corner.

For the Bank of England, it’s Catch 22. For the economy to grow and keep growing, we may need people to continue spending, not saving. However, with low levels of savings, households are less equipped to deal with any future shocks. And with Brexit getting closer and much uncertainty still surrounding what the outcome will be, it’s clear that many people may be simply unprepared should they need their savings to fall back on.

More than half (53%) of 22-29 year-olds had no money saved in a savings account or ISA in 2014 - 2016 compared with 41% in 2008 to 2010. That should be a huge concern.

Pensioners may have paid the price but at least they are likely to be more prepared financially for possible future shocks than the next generation. Let’s just hope it doesn’t come to that of course.

If you would like any help with your savings, why not give one of our Bath-based experts a call on 0800 011 9705, we’d love to hear from you.

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