20 million homes can't afford to save as recession bites

Only the richest portion of society can still afford to set aside savings, according to new research by AXA.

The firm says that over 20 million households have been eating into savings since the turn of the year and that only the wealthiest 20 per cent of the country has avoided spending beyond their means.

AXA says its new analysis of recently-released savings ratio figures - which measure the amount of disposable income households save rather than spend - shows that most people can no longer afford to save with the exception of those bringing in over £70,000 a year - or more than £52,785 after taxes and benefits.

And in the aftermath of the global credit crunch, AXA warns that people need tangible solutions to help them keep their finances intact and to overcome the anxiety they feel about their financial security.

The findings come as AXA prepares for the second annual My Budget Day, a campaign devised to encourage the nation to spend just one hour a month (or fifteen minutes a week) planning their finances. My Budget Day takes place on 20th November this year and the firm says it has particular significance given the current economic climate.

The analysis shows that Britain's poorest households are hardest hit - those whose earnings are in the lowest 20 per cent and are typically less than £12,420 a year after taxes and benefit contributions. AXA says these families typically rely on benefits to supplement their annual income and had a savings ratio of -7.4% in the first quarter of 2008 and of -5.9% in the second quarter of the year.

And even those households in the second wealthiest income bracket - those bringing in between £35,000 and £52,000 a year after taxes - have failed to notch a positive savings ratio in 2008.

In fact the trend of having to dip into savings or other assets to fund spending is the same in all households apart from the very wealthiest, or those earning over £70,000 per year.

According to AXA, many people don't know how to deal with their financial problems. "Many of us still feel helpless even though we're worried about our money and understand that the cost of living is increasing," said Steve Folkard of AXA. "If people feel there's nothing they can do this will lead to disengagement and apathy. Which can lead to financial disaster."

The decline in household wealth over the first six months of the year coincides with increases in many factors affecting disposable income, including rising fuel costs, increasing utility bills and the soaring price of food.

Steve Folkard of AXA added: "The reality of the economic downturn is being felt in homes all over Britain. It may be a global financial crisis but the effects are rippling down to a very local level.

"If only the richest members of society are managing to cope with their spending then we really need to consider how to improve the day-to-day financial health of British households. Talking about global issues is important but they need to be put in perspective with tangible solutions being offered to individuals.

"People are anxious about how to deal with their finances. You need to get into the habit of regularly reviewing your financial situation and My Budget Day is about kick starting that habit. You only need to spend an hour a month looking after your money and we know you'll be hugely better off in the long run, both financially and emotionally."

AXA My Budget Day is on November 20th 2008. AXA has developed a specific website to help people make meaningful changes to their financial situation - go to axa.co.uk/mybudgetday for more information.