Saving incentives

lalman

I apologise if this is in the wrong location but something has been bugging me for a while.

One of the reasons the UK is in a mess (and the USA) is that we spend more than we save. We have a national debt of i believe 1.3tr, private debt of 1.4 tr and unfunded liabilities of around 4 tr (public pensions etc) that the government keeps off the balance sheet and doesn't mention.

Secondly, this recession has been blamed on interest rates being 'too low for too long' in the wake of 2002-2006.

So i ask the question, aren't we repeating the exact same thing as before? national debt is a record levels, private debt is at record levels, unfunded liabilities are at record levels.... interest rates are at record lows for a record amount of time... and people are not saving because there is no incentive to do so (apart from us on this forum).

Tell me if my thought process is wrong... please....

marathonic

Is financial security and the ability to cope with lifes unexpected events without having to resort to payday loans and the likes not incentive enough?

It is for me - and interest rates are a secondary concern.

N1AK

lalman wrote: »

I apologise if this is in the wrong location but something has been bugging me for a while.

One of the reasons the UK is in a mess (and the USA) is that we spend more than we save. We have a national debt of i believe 1.3tr, private debt of 1.4 tr and unfunded liabilities of around 4 tr (public pensions etc) that the government keeps off the balance sheet and doesn't mention.

Secondly, this recession has been blamed on interest rates being 'too low for too long' in the wake of 2002-2006.

So i ask the question, aren't we repeating the exact same thing as before? national debt is a record levels, private debt is at record levels, unfunded liabilities are at record levels.... interest rates are at record lows for a record amount of time... and people are not saving because there is no incentive to do so (apart from us on this forum).

Tell me if my thought process is wrong... please....

The problem is that, like many things, what is in your best interests isn't always the easiest not most instantly gratifying thing.

On a government level this means that saving brings in less taxation and restricts economic growth. They don't want, and in fact couldn't function properly, if there was a sudden and giant increase in saving. What a good government would do is look to gradually increase saving such that in ~20 years we are in a stronger position.

On a personal level the problem is that there are incentives but people don't think long term enough to value them. As things are going I should be able to retire early, with a reasonable private pension and other investments. Being able to do that is more than enough incentive for me to save, however given that retirement is 40 odd years away I can understand why many others my age don't value that incentive as highly.

If interest rates were 2% higher it wouldn't encourage the average 20 year old to save because not spending £1,000s now so that they have a few £1,000s in a decade isn't an incentive that will work for them.

Archi_Bald

marathonic wrote: »

Is financial security and the ability to cope with lifes unexpected events without having to resort to payday loans and the likes not incentive enough?

It is for me - and interest rates are a secondary concern.

It is for me, and my family, too. Though it is scary how many people seem to just have their head in the sand and rely on the State or some miracle to look after them when they cannot work any longer for whatever reason.

The culture of blaming someone or something else is too prevalent. Not saving (or investing) because interest rates are low is just another excuse for people not taking responsibility for themselves.

N1AK

Archi_Bald wrote: »

The culture of blaming someone or something else is too prevalent. Not saving (or investing) because interest rates are low is just another excuse for people not taking responsibility for themselves.

It doesn't help that with the goalposts always changing, quite often in ways that penalise people who have saved, it can look like saving causes more headaches than it solves.

Views like "Why bother with a pension, I'll never get to retire" or "If I have a pension then they'll just decrease my state pension" are pretty common; and sadly they aren't nonsensical enough to easily dispel.

Ultimately we need to be pragmatic. We can't just say stuff those who choose to be financially irresponsible and leave them to starve, because:
1) In my opinion it's immoral
2) Too many people are in that position, and we're a democracy, so it'll never happen

Given that then, rather than trying to get everyone to decide to save, we should decide how to handle the fact that they won't. That means, for example stopping people opting out of pensions if they can't show they have a financial plan to support themselves in retirement, and getting rid of child support and expecting people to work if they can't afford to support children without an income.

talexuser

The "interest rates too low" THEN was in a period of economic growth, and led to a boom that was unsustainable compared with the fundamentals, a boom that encouraged borrowing (and gambling) on a scale never seen before. It was based on the premise that private enterprise knew best and would never cut it's own throat (good examples - Lehmans, RBS, and practically every other bank assisted indirectly by the taxpayers).

The "interest rates too low" NOW is a panic measure to preserve the present system and prevent it breaking down entirely - we've never had anything like it in history as far as QE printing money is concerned.

The indebted nations don't want saving, cutbacks in spending have led to downturn in growth so authorities want you to spend to stimulate the economy and provide growth to "prove" their policies are working.

Has anything been done to solve the fundamentals? - No.

The national debt is increasing and continues to increase. We are supposed to be at 80% of GDP but measured the same way as Eurozone it is 100% of GDP. Low growth will take many years to replace the lost wealth of the downturn. The Euro is not solved. The banks have not been reformed to split retail form investment, the buffers have just been increased a bit - at the overall expense of savers low rates. Their promises of investment in return for bailout have not been met, so taxpayer schemes have had to be introduced - arguably the thing that has started a recovery of sorts! House prices are unsustainable and new buys subsidised by the taxpayer up till now. The population is ageing and young people are not saving for deposits (since they are out of reach) let alone for retirement.

How we get to a national ethos of saving from here is beyond me - the only incentive is fear of redundancy/penury etc which does not seem to have worked so far.

The policy we have left is limp along for as long as possible because the only alternative is amputation of both legs.

And finally... a Happy Christmas to you all !! :j

Archi_Bald

N1AK wrote: »

That means, for example stopping people opting out of pensions if they can't show they have a financial plan to support themselves in retirement, and getting rid of child support and expecting people to work if they can't afford to support children without an income.

Yes to all of the above. Plus
- financial education in schools (though do we have teachers with the right skills?)
- more communication (TV, Press) about the value of emergency funds and pensions
- making long term overdrafts more difficult to get
- introduce a max APR% for loans and CCs, and link the amount people can borrow to how much they can afford to pay back (e.g. x% of monthly income)
-gradual reduction / stop of benefits if person refuses x job offers in a given timeframe

marathonic

N1AK wrote: »

It doesn't help that with the goalposts always changing, quite often in ways that penalise people who have saved, it can look like saving causes more headaches than it solves.

If by, "the goalposts changing" you mean the increases in the age at which you can begin drawing a state pension, this penalises the people who haven't saved more so than those that have.

Those with sufficient pension contributions can still draw on their private pension at 55. It's those that rely on the state that are most impacted and I refuse to be in that category in years to come as I approach retirement.

jimjames

Archi_Bald wrote: »

Yes to all of the above. Plus
- financial education in schools (though do we have teachers with the right skills?)
- more communication (TV, Press) about the value of emergency funds and pensions
- making long term overdrafts more difficult to get
- introduce a max APR% for loans and CCs, and link the amount people can borrow to how much they can afford to pay back (e.g. x% of monthly income)
-gradual reduction / stop of benefits if person refuses x job offers in a given timeframe

All make complete sense so it's a shame that most won't actually be implemented. On the one hand we have complaints about the nanny state interfering in people's lives and on the other where there hasn't been regulation people do stupid things. Along with all the above I think there needs to be more personal responsibility for actions. I never took out an endowment mortgage or PPI because I could see they weren't things I needed - those who did are now cashing in.

In terms of interest rates it isn't actually true that rates are all low - you can get 5% at Nationwide on up to £2500 which would be more than enough for the vast majority of people who have no or little savings. Having £2500 or even £1000 would be a massive start for those who have no savings currently so I really don't think a low interest rate is stopping them saving.

opinions4u

The electoral cycle is shorter than the economic cycle.

So fixing things for the long term good isn't in any politician's interests.

Wilkins

lalman wrote: »

.... interest rates are at record lows for a record amount of time... and people are not saving because there is no incentive to do so (apart from us on this forum).

Tell me if my thought process is wrong... please....

On this point, yes. Interest rates tend to be low in times of economic depression and high in times of boom, as governments try (usually too late) to act contracyclically. Savings rates, though, tend to move in a contrary fashion. In other words, the common saver's gripe that low interest rates discourage saving, whilst it may be a personal feeling, is not empirically founded.

However, I don't disagree the the general tenor of the remarks by all on this thread, so far.