Tuesday, 28 August 2007
Time to start Saving?
According to Post Office Research out today the UK's savings ratio is only 2.1%.
As we would expect a wide variety of news organisations are covering the story. They are generally making nice headlines like 'Briton's save less today than 150 years ago.'
This one bemoans the choices people make and the BBC story makes it sound like people are being feckless in today's modern world.
Yet there are some very good reasons at the moment for a low savings rate;
1 - With relatively low inflation the banks offer paltry returns on money put away, in fact in a normal bank savings account it is not unusual to find that the return after inflation and tax is a negative. People are not stupid and have not piled into this.
2- With house prices rampant many people today have invested instead in mortgage repayments each month. Anyone who has done this in the past ten years will have seen an approximately 3 fold return on their money.
3- The Nanny state now looks after us more than ever. Need medical assistance? free. Need education for your children? Free. Need housing urgently? Free. In the past we did not have such a wide safety net as we do today. Thus a big incentive to save has disappeared.
4 - Also with a reduction in the number of final salary pension schemes due to Government mismanagement, there is less reward for saving for retirement than there was just a few years ago. So unsurprisingly people are saving less for retirement than they used to, as the returns available have gone down.
5- ISA's are the government's choice for encouraging investment. They heavily plug using them to buy shares and funds; not really a good choice in the last few months with the market down 10% recently. I would be surprised to see many shares ISA's being created today.
So whilst all the Mainstream media make this sound like a tale of woe, it is nothing of the sort. instead people are making the right decisions for the environment we live in. As inflation goes up further and house prices decrease, traditional savings will come back.
Which after all is just what the post Office wants, hence commissioning the research!