Brits set to save less
The amount UK families will be able to save will fall by more than 20% in the next five years, according to a major new Post Office report.
Its Future of Savings study looks at changing trends in Brits' savings habits over the last 50 years and what it expect to happen in the forthcoming years.
Despite a growing sense of optimism in the UK economy, the amount of cash families are able to save each month is falling thanks to the rising cost of living and increasing consumer confidence.
The study found that the average amount available to save will fall from £3,780 to £3,630 this year - a similar level to what it was at in the 1960s. By 2015 it will have fallen to £3,518 and to just £2,994 in 2018.
The study has led to the Post Office to warn that while spending is good for the economy, savers are simply not saving enough cash. Of a quarter of people (26%) who said they had a savings target, a fifth (20%) said they expect to miss their goal.
Unsurprisingly, the lowest income households are not saving any money at all - and haven't done so since 2002. The study predicts by the end of 2014 this group will still have no savings and an average debt of £1,910.
Old spending habits
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. 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."
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).