In the days and weeks after every budget, details and figures are unpicked at by industry experts. Hidden away in this year’s autumn budget was a little insight into the country’s savings habits – and it’s not looking good.
According to the Office of Budget Responsibility, we’re currently saving just £2 in every £100 we earn. That’s a significant drop off from last year, when the figure sat at £6 in every £100, and experts suggest that it’s a growing issue.
The official forecast suggests that, in the last quarter of 2018, our savings will plummet from £2 to £1.80. One year later, those figures slump even further, down to 90p for every £100 in income. By the time we hit 2022, for every £100 we get, we’ll be saving just 30p.
It seems we’re in the midst of a perfect maelstrom. We all know just how important it is to save. Indeed, best practice suggests we have a minimum of three to six months’ salary stashed away in our savings accounts. Such an amount would, in theory, at minimum cover any unexpected expenditure, from urgent car repairs to losing your job.
The trouble is, the economic landscape isn’t great for savers. Cost of living rises coupled with wage stagnation means everything feels like it’s cost more – salaries are creeping up at an average of 2.4%, while inflation rates are hitting 3%. As such, we’re now borrowing to make ends meet, leaving little to put away for a rainy day (and the Bank of England, fearful of repeating the mistakes of the credit crunch, is already warning lenders about how much they’re giving out, and to whom). In other words, we’re all feeling the pinch and don’t feel we can afford to save.
And that’s a situation described as ‘alarming’ by senior economists. Patrick Connolly, of Chase de Vere, an independent financial adviser, said:
‘It is alarming that as a nation we are not saving enough. We are exposed if something happens in the short term, such as unexpected expenditure or losing your job, and we are not saving enough over the long term for retirement.’
Meanwhile, Hargreaves Landsdown’s Danny Cox firmly states that:
‘We are building problems for the future. Savings rates are so low, people are saying what is the point of saving? We might as well spend it.’
However, one of the primary factors contributing to this ‘alarming’ state of affairs is the rapid plunge of the savings rate, which offers little incentive to save – especially when looking for a good return on your investment.
Over just five years, we’ve seen the rate cut by half – September 2012 saw short-term savings rates of around 1.05%; long-term deposits netted customers almost 3%. Fast forward to January 2016, and those rates stood at 0.7% and 1.6%. Now, you’ll find the average savings rate to be 0.4% for short-term savings, or 1.1% for those long-term deposits.
The Office of Budget Responsibility’s candid assessment of the saving landscape could. Already financial institutions are doing what they can to shore up shaky ground of the post-recession. Savings might now be wondering, with the Government aware of the situation, whether saving incentives might be on the agenda.