Statistics Reveal That The Habit of Saving is Fast Declining

Advisor January 10, 2018

Gauging Financial Health

Most financial analysts consider two essential statistics to determine how well people are doing financially. Primarily, these statistics reveal whether people are comfortable financially or whether they are encountering financial difficulties. The Office for National Statistics publishes these statistics, and they are commonly regarded as the two most essential economic indicators highlighting not only the overall economic health but also the overall financial health. These indicators also show how the challenges such as settling healthcare payment as we get older, taking care of our parents and financially supporting our children would be handled

For the first statistic, it shows whether the households in Great Britain fall within the bracket of net lenders or net borrowers. In essence, are most households borrowing money, i.e. are they having to spend their savings to sort out their expenses, or are most of them lending money out to the economy in the sense that they are making pension contributions, saving up and investing. Statistics reveal that between the year 1987 and the year 2016, most households fell within the bracket of net lenders even during those times when there was recession, and there were tendencies that the income would fall as unemployment surged.

One of the statistics show whether most households are borrowing money, i.e. spending their savings to sort out their expenses, or lending money out to the economy in the sense that they are making pension contributions, saving up and investing.

Borrowing v Savings Rates

Since the year 2016, most of the households in Britain fell within the bracket of net borrowers for about 18 months in a row, meaning that they have been settling expenses far greater than the amount they received as income. Reports show that the figures happened to be the first time something of sort would happen since the records keeping began. As evidenced in this period, incomes have become stagnant, several households have difficulty making ends meet and borrowing costs have become incredibly cheap. Also, borrowing money has become as easy as just swiping an app which has made it easy for people to take loans as it has also made taking loans appear more attractive to several people. On the other hand, some banks have saving rates that are as low as 0.05% which has made the idea of saving less attractive to people.

Incomes have become stagnant, households have difficulty making ends meet, borrowing costs have become incredibly cheap and the process of borrowing money has become as easy as just swiping an app.

Savings Ratio

The second important statistic is the ratio of savings. Succinctly put, this refers to the proportion of disposable income saved. Disposable income refers to what remains after taxes have been deducted. At the moment, studies reveal that the saving ratio is now at 4.1% which is third lowest since keeping the records began in the year 1963. Note that in the 1990s, the figure ranked at a high of 14.7%.

The implication of this is simple—people are losing their savings habit. This means if there are any financial difficulties in the future, so many people are not preparing to handle that. Analysts noted that the reason is because for a lot of people, this period constitute the time when they have financial difficulties. It is pertinent to note that the visible change in the saving trends is fundamental and it is essential that it is examined because borrowing can cause people to come under huge financial pressure, especially if the interest rates are surging.

Last year, a survey conducted by a Financial Conduct Authority revealed that several millions of persons could have difficulty paying an unexpected £50 bill at the end of a month. The import of that finding is that the finances of many households are currently stretched. A change in the interest rate could cause a little improvement in the saving rates of individuals. However, to have a lasting effect, there is a need to have more concrete and extensive changes.