Financial security can be assessed in many ways, Jayne Lucas takes a look at the current state of UK household savings.
On a national level, the statistics are highlighting a concerning trend. 27 million households are net borrowers or net lenders and since 2016. For a consecutive 18 months, UK households have been net borrowers – spending more than they receive in income.
The savings ratio measures the proportion of disposable income that we save. Since 1963 this measure has been an indicator of savings in the UK. The current figure is 4.1% which is the third lowest level since the ratio started in 1963. In the 1990s, the ratio was as high as 14.7%.
Many of our clients do have savings in place, but are you passing on the savings habit to your children or grandchildren?
Good habits to make
Last month we highlighted the merits of setting a budget to help with managing yours and your family’s finances. Our general guidance is that you should have three to five months expenditure held for emergency funds, although this may vary depending on your specific circumstances. This enables you to be more prepared for unforeseen expenses or to plan ahead for larger outlays which won’t be easy to meet without a plan.
Mighty oaks from little acorns grow
Thinking about the need for a large lump sum may be daunting and it may be difficult to start when the end target seems so far away and unachievable.
But by making regular savings, along with the effect of compounding, where over time you receive growth on growth, it may not be as unachievable as you first imagine.
For example, a regular saving of £200 per month can grow to an investment value of over £31,000 after 10 years, assuming annual growth of 5%.
The search for investment returns
In the current economic climate, despite the recent base rate increase to 0.75%, cash savings rates remain at very low levels – often below 1% and widely below inflation of 2.4%.
With low cash savings rates, you may need to explore other ways to invest, which may expose your investment to some risk. Our advisers can assess your attitude to risk and review your financial objectives so that suitable savings and investment plans can be put in place that meet your needs and are aligned to how much risk you are willing to take.
Lead by example
The key is to get the savings habit and to commit to making regular savings, so that you are in a better financial position. If you are already well placed, then make sure your good habits rub off on your friends and family members.
This article is for information only and is not to be taken as Financial Advice.