In 2018, a study found that one in four adults have no savings. Many people in the UK wish that they had money to save, but high monthly expenditure and repaying debt seem to take precedence. Saving for life’s unforeseen emergencies is a great way to maintain a sound mind, but poor financial management and large monthly outgoings can get in the way. So is this issue confined to the UK, or is the battle to save a universal problem?
In Germany and France, the savings ratio sits at 10.9% and 15.25% respectively, that’s over double the UK’s value for Germany and triple for France! Sparkasse bank’s Managing Director points to cultural ideals as the key influencers for the high German saving rate, saying that: “Saving is seen as the morally right thing to do. It is more than simple financial strategy.” This view point seems typical for the country that’s home to the first ever savings bank, opening in Hamburg in 1778.
Across the pond
Households in the US are currently able to save 6.5% of their disposable income, down from the former figure of 7.3% after estimates were made by Trading Economics. Although this might seem like a decent savings ratio, earlier in 2018 a report was made, discovering that 40% of US adults don’t have enough savings to cover a $400 (roughly £307) emergency. For most people, that amount is nowhere near enough to cover 3 months’ outgoings—the minimum figure that most financial advisers recommend you set aside or build up for emergency purposes.
The current UK savings figure sits at 4.8%, one of the lowest since records began in 1963! The Office for National Statistics has come up with an even lower figure of 3.9%, which actually is the lowest recorded. Further to this, a report was also made by the Financial Conduct Authority in 2017 that millions of UK residents would find it hard to pay an unexpected bill of £50 at the end of the month, and very little has changed since then.
Why do we not save as much as we used to?
For UK households, the notion of accumulating a rainy day fund may not be completely lost but for many, the rainy days are happening right now. A further reason relates to the tendency of UK households to borrow more money in order to maintain lifestyle choices. For all quarters in 2018, households were net borrowers, drawing on loans and savings to fund spending and investment decisions.
Comments have been made referring to current Brexit uncertainty as a cause for the change, together with increased living costs and rising rental prices. Whether this new change in spending and saving is entirely due to current economic or cultural factors is yet to be established. Another case has been made for low interest rates making it a less attractive option for savers to save. Be it economic or cultural, it is undeniable that UK households have lost faith in the ethos of saving their pennies.
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