Savings ... something of the past?

wymondham

Got some interesting info on savings today. This tagged with the current poor rates and likelihood of savings returning even less soon, is saving in the traditional sense outdated?

"Around 9.61m (36%) households have no savings, while a further 3.47m (13%) have under £1,500. 71% have less than £10,000 in savings."

enthusiasticsaver

I think this is more a reflection of families using easy, low interest credit more and feeling they do not need to save. Personally I like the security of having savings behind me and do not want to rely on credit. We are coming up to retirement however and have no mortgage any more and outgoings are low. I would wager most people with high amount of savings are in a similar position to us - older, double income with no kids to support any more.

I recently had a discussion with my younger daughter (age 28 married with one child) about budgeting. She is probably in the same situation as many households in the UK in that they have a high mortgage which depends on two incomes and has just had her first child and is looking into nursery costs so she can return to work. Luckily she was brought up to save so when she went on maternity leave her and her husband had no debt but a perfect storm of high housing costs and high childcare costs means there is very little she can save every month. She does save but normally for something specific like a holiday, home improvements, annual bills etc. Any savings that they make therefore go out quickly rather than being sat in an account to accumulate. They do have pensions however for the long term and has just started up a junior ISA for their new baby but until she goes back to work full time they do not have a lot of spare money to save.

Out,_Vile_Jelly

I find the figure of 36% with no savings shocking. Even when I was on a rubbish salary I saved at least 10% of my income; I don't think I would enjoy anything I bought if I didn't have a bit of a Rainy Day cushion.

I know the interest is dismal to non-existant, but I like the reassurance of six months plus salary at hand.

westernpromise

There’s no point saving. Stock market is too volatile, bank rates too low and too raidable, pension not worth having above a certain amount and also too easily raidable by the state.

That just leaves property, and with the recent tax and SDLT changes, that means your own property. We are turning into a nation of long-term holders.

chucknorris

westernpromise wrote: »

There’s no point saving. Stock market is too volatile, bank rates too low and too raidable, pension not worth having above a certain amount and also too easily raidable by the state.

That just leaves property, and with the recent tax and SDLT changes, that means your own property. We are turning into a nation of long-term holders.

I think that it is important to have some portfolio diversity, the volatility of the stock market doesn't put me off investing (although it does present a challenge for short term value) as in the long run I think that it will probably be higher at some point in the next 20 years, and in the meantime the dividend income is both reasonable and favorably taxed. Saying that of course my portfolio does happen to be top heavy with property.

michaels

I think people suffer from money illusion and see saving when interest rates are 5% and inflation is 4% as being worhtwhile whereas when it is 1% and 0% it doesn't seem worth it.

(As an aside, I really can't see the point of a junor ISA - by all means save for your kids but keep control of the money so that you can give it in a way that helps the child rather than just assuming that coming into a lump sum at 18 will be doing them a favour.)

westernpromise

michaels wrote: »

I think people suffer from money illusion and see saving when interest rates are 5% and inflation is 4% as being worhtwhile whereas when it is 1% and 0% it doesn't seem worth it.

That example is correct, but historically interest rates and inflation have always been about 3 to 5% away from each other so the current levels are very low in those terms. In effect, if you need to draw 5% from your capital to live but you're only getting 1% for it, you're depleting capital at 4% a year - a much less comfortable feeling than getting 5%, spending it all, and still having the same capital left at year's end.

ReadingTim

michaels wrote: »

(As an aside, I really can't see the point of a junor ISA - by all means save for your kids but keep control of the money so that you can give it in a way that helps the child rather than just assuming that coming into a lump sum at 18 will be doing them a favour.)

I dunno - a lump sum at 18 would be pretty handy if you were going to university, as long as you put it towards the tuition fees, rather than drank it away in the union. And that's the rub for anyone mid-thirties and under with a degree - repayment of student loans coupled with high property costs and being autoenrolled into pension schemes mean there's very little left - bluntly, savings are a luxury fewer and fewer can afford.

michaels

westernpromise wrote: »

That example is correct, but historically interest rates and inflation have always been about 3 to 5% away from each other so the current levels are very low in those terms. In effect, if you need to draw 5% from your capital to live but you're only getting 1% for it, you're depleting capital at 4% a year - a much less comfortable feeling than getting 5%, spending it all, and still having the same capital left at year's end.

Is that true - any charts to compare market leading savings rates and inflation? Don't forget actually with lower nominal rates you are probably better off because you are not being taxed on inflation.

ReadingTim wrote: »

I dunno - a lump sum at 18 would be pretty handy if you were going to university, as long as you put it towards the tuition fees, rather than drank it away in the union. And that's the rub for anyone mid-thirties and under with a degree - repayment of student loans coupled with high property costs and being autoenrolled into pension schemes mean there's very little left - bluntly, savings are a luxury fewer and fewer can afford.

Sure but when my kids are 18 I will decide what my savings for them will go on and when they are ready to get them - be it a car to get to work, support for uni or even perahps deferring payment till they graduate to pay back loans or later still to help with a deposit. I would be pretty sad if they got a lunp sum at 18 and it resulted in them not studying for A levels or deciding to give uni / working a miss as they had funds to party on for a while. Of course I hope my kids won't be in the middle of such a phase at 18 but I can not be certain right now.

[Deleted User]

I can remember the days of 20%+ inflation with savings paying 12-15% so the value of savings were falling fast, now we may have interest on savings of 2% but inflation is 0.3% so its a win win.

westernpromise

michaels wrote: »

Is that true - any charts to compare market leading savings rates and inflation?

Not offhand but it was the rule of thumb for a long time. In 1989 I remember reading with horror in the paper that rates usually needed to be 5% above inflation for 3 to 4 years to bring it down. Inflation was thought to be heading for 10%, so this implied rates in the 10 to 15% range for 3 to 4 years.

Sure enough inflation peaked at 10.something%, base rates at 15%, mortgage rates at higher still, and the rise past (and return to) 10% or so did indeed take three or four years.