Consumers struggling to save

Consumers are now more pessimistic about their ability to save than at any time in the past year, according to the latest Nationwide Savings Index.

The report shows that increasing numbers see saving as important, but over a quarter (26%) save nothing at all and less than half (46%) save regularly. Worryingly, 60% now admit to saving less than they need to, compared to 56% six months ago. It seems likely that the majority of households are being left with little or nothing to save after mortgage payments and household bills have been accounted for.

But despite this poor showing, the report also indicates that people are more optimistic about their ability to save in the future than at any time since Nationwide began the Savings Index in June 2008, with the Future Savings Index shows a 10 point increase in the number of people who expect to save more in six months time. These figures are perhaps in reaction to recent reports that the worst of the recession may be over.

Andy Hutchinson, head of savings at Nationwide, says:

“This month’s Savings Index provides further evidence that consumers continue to find the environments enabling them to save are unfavourable. Rising unemployment and falling income growth clearly make it difficult to save, while the low level of interest rates may have increased the incentive to prioritise debt reduction over deposit accumulation.”

“Although the increase in ISA limits announced in the Budget should help to boost longer term levels of savings, it may not have much impact in the short term since very low interest rates are limiting the extent of the tax benefit. However, it is encouraging to see that there has been an increase in confidence about the future ability to save, which is consistent with recent rises in consumer confidence about the overall economic situation.”

“With household financial wealth having fallen significantly as a result of house price and equity market declines, it is more important than ever for consumers to rebuild their savings position for retirement. This month’s large increase in the Importance of Savings Index suggests that consumers are beginning to recognise this reality and have the desire to save more. Initially, increased saving is likely to occur mostly in the form of debt reduction, yet once debt reaches a more sustainable level in relation to incomes, there should be opportunities for households to put more money into deposit savings and other financial assets.”