Savings Ratio Falls: Is Credit Culture to Blame for Lack of UK Savers?

People in the UK are saving less and less, increasing the future burden onto the younger generation following them.

This stark announcement by the Office for National Statistics has led to calls from experts to increase interest rates and make moves to change the current social norm.

National accounts show alarming features

According to figures released for the first quarter of this year as part of the UK’s national accounts, real incomes have been declining for the past nine months, the longest noted decline for over 40 years.

In addition, the savings ratio has dipped to a mere 1.7% of GDP, the lowest since 1960. These two factors add up to a perfect storm as far as saving for retirement is concerned.

People are clearly only managing to maintain their standard of living by dipping into their savings. This, combined with the fact that occupational pension contributions are falling, means that average household savings are currently in negative.

So, why does the decline in savings matter?

State’s burden increasing

What does it matter if people are living for today, rather than setting aside money for a rainy day?

Well, if people don’t save for their retirement, the burden must shift to the state, or rather to the current generation of working people who pay the majority of tax.

This is bound to create tension and resentment, when the young realise that they will have to work to supplement the pensions of those who are due to retire through their taxes.

Equally, those baby boomers who have already retired want to spend the pensions they have worked so hard for on themselves, rather than bailing out their children.

To add to the problem, until 10 years ago, the number of people who owned their own homes was on the rise, whereas now it is falling.

Buying a home is a long term investment. Given that an increasing majority of young people can only rent, meaning that they have no assets such as property.

Credit culture to blame?

So, what has happened to the culture of saving?

A generation or two ago, saving money was the norm, as was having ownership of a property that many people lived in until they died.

The house was then passed on, mortgage-free, to their children, giving them the vital foot on the property ladder and a starting investment that is so rare these days.

Instead, the country now seems to thrive on easily available credit.

Many borrowers only make the minimum repayment to their credit card company each month, leaving themselves with large amounts of interest accumulating and trapping them in a vicious circle, treading water. There is even a theory that contactless debit cards have made random spending even easier too.

It seems that the working population of the UK needs to see a key change in its attitude to both borrowing and saving, or the future UK government as well as pensioners will all find themselves in trouble in 30 years’ time.

Eve Hooper

A retired City worker who resides in deepest rural Essex. Eve writes on personal finance for fun and to help educate other older savers.