UK households at risk of savings crunch

The amount UK households have available to save is set to fall over the next five years, according to the Post Office’s Future of Savings study.
 
The study compiled by leading forecaster, the Centre for Economics and Business Research (Cebr), looks at the changing trends in UK savings over the last 50 years, and forecasts how the UK’s savings habits are set to change.
 
While there is a growing sense of optimism that the economy has turned a corner, the amount of money available for UK households to save (the ‘potential saving’) is on the decline. Once housing and living costs – right down to holidays and pints bought in the pub - have been taken into account, the amount left at the end of each year to put into savings is set to fall for the foreseeable future. The rising cost of living coupled with increasing consumer confidence is thought to be the driver behind this forecast
 
This figure has fallen from £4,414 in 2010, to £3,780 in 2013 and is expected to fall further in 2014 to £3,630, and then again to £3,518 in 2015. By 2018, this pot will have been reduced to as little as £2,944. By the end of this year, the amount of money available for households to put into savings will be the same level as it was in the 1960s. Cebr predicts that around 70 per cent of this figure will actually be put into savings – with the rest accounted for by holding cash, storing money around the house or lending it to friends.
 
While spending is good for the economy, the reality of the situation is that people are simply not saving enough, with the findings indicating that the UK is in danger of returning to pre-recession spending habits. Of the one in four (26 per cent) UK adults that set themselves a savings target each year, a fifth (20 per cent) expect to miss this goal.
 
Furthermore, over a fifth (22 per cent) of savers are set to save a lower proportion of their income than they did last year. This is most likely to occur in the North West where almost a third (30 per cent) expects to save a lower proportion of their income. It’s a different story in London, however, with those who save hoping to deposit a higher proportion of their income than they did last year.
 
Commenting on the findings, Henk Van Hulle, Head of Savings and Investments at the Post Office said: “While the economy is on the up and inflation remains low, our findings suggest that UK households are in danger of not saving enough. Reverting back to old spending habits can be easily done but this will have a detrimental effect on the amount we have to save each year.
 
“Even though the cost of living remains one of the biggest factors preventing people from saving more, it’s crucial that people understand the importance of saving. Whether it’s paying for a broken boiler to be fixed, or paying for a family holiday or retirement.
 
“While it’s not always easy to save, putting a little to one side often would go some way to transforming the UK’s savings landscape.”
 
Perhaps, unsurprisingly, its’ the wealthiest 40 per cent of the UK that is doing almost all of the nation’s saving, with more than £18,000 available to put into savings. In comparison, the lowest income households are not saving at all, and haven’t done consistently from 2002 – 2014. Cebr predicts by the end of 2014 this group will end the year with no savings and an average debt of £1,910.
 
Henk Van Hulle adds: “If the UK’s savings habits don’t improve, we’ll be left in a situation where far too many of us have inadequate savings pots, putting more financial stress on people in later life.”