UK households are saving a lower proportion of their income than at any time since autumn 2008, right before the financial crash.
The savings ratio, the average percentage of post-tax income left over once you deduct spending on goods and services stood at 4.9% in Q1 2015, just 0.3% above the near 50-year low it met in Q3 2008.
In one sense this represents good news: the weak wage growth and insecurity after 2008 led households to cut back their spending drastically, and credit became much harder to come by, pushing the ratio into the low double figures in the early years of the current decade.
As wages picked up by 2.7% in the year to April and consumer credit rose by £399 per household in the year to May, we can see that better economic times are leading households to consume more freely.
However, low savings and debt which stands at £53,790 per household leave Britons extremely exposed to any increase in interest rates or other shocks to personal finances.
Michelle Highman, Chief Executive of The Money Charity, said:
“Although we should welcome some of the recent real wage increases and greater consumer confidence that is allowing people to feel they can spend again, this historically low rate of saving is worrying.
Our Money Statistics show that around 9.24m (35%) households have no savings; while a further 3.43m (13%) have under £1,500. That’s half the country only one financial shock away from a crisis!
“We know the profound difference even a small savings pot can make, building resilience and allowing us to achieve the big things in life.
The Bank of England base rate stands at 0.5% for the 75th month running, and the £1,259.62 that the average person is saving each year returns £4.03 in interest from an instant access savings account after tax. Private renters are also spending 41% of their income on housing and the cost of bringing up a child is at an all-time high of £29.91 per day.
All this adds up to a country where it is becoming harder and less enticing to save.
Despite it being difficult at the moment, we encourage everyone to save if they can. People we speak to every day tell us the huge difference it can make, particularly in preventing life’s blips from becoming crises.”
Other figures in July’s edition of The Money Statistics include:
- The average total debt per household – including mortgages – was £53,790 in May. The revised figure for April was £53,718
- In Q1 2015, households in the UK spent £82.80m a day on water, electricity and gas – or £3.10 per household per day
- Per household, there was an average consumer credit debt of £6,425 in May, up from a revised £6,399 in April – or £399 extra per household over the year
Get the full picture in The Money Statistics or download this press release as a PDF: