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Families feeling the savings pressure

Families feeling the savings pressure

Category: Savings

Updated: 29/05/2014
First Published: 29/05/2014

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

How much do you try to keep up with the Joneses? Juggling the family budget can be difficult enough at the best of times, but according to research from GE Capital Direct, a lot of families are feeling the pressure to keep up with the purchases of friends and family too – and nearly a quarter of them delve into savings to do so.

The research found that 23% of parents surveyed will use savings to fund the likes of unplanned holidays, family days out and even birthday parties – incidentally, that's more than twice as much as those without children, with just 11% admitting they regularly dip in to keep up.

It would seem that the family piggy bank takes quite a hit too, with the average day out costing £250 and those unplanned holidays needing an average of £915 to be siphoned off. Even parties and presents can soon add up, with parents admitting they typically spend £440 each time.

It's perhaps no wonder, then, that 45% feel guilty for raiding their financial reserves, and it could prove to be even costlier if savings levels continue on their current path – additional research from Post Office has revealed that the nation could be on the cusp of a savings crunch, with the average amount people are able to save set to fall considerably.

In this year alone, the average amount people have available to save is set to fall from £3,780 to £3,630, and by 2015 this figure will have dropped to £3,518. It's set to continue over the following years and will fall to £2,944 by 2018 – it's a worrying sum, and according to Post Office analysis means the UK is set to return to pre-recession spending habits.

This concern is heightened by the fact that 22% of UK savers expect to save a lower proportion of income this year compared to last year, and many fall short of their savings target – often considerably. The figures show that 26% have set a savings goal with the average target being £956, but in reality 20% of those will miss it and are set to fall short by more than £500.

The rising cost of living is clearly taking its toll on people's ability to save, and it's those on the lowest incomes that could suffer the most, with this group set to end the year with no savings whatsoever and an average debt of £1,910.

Henk Van Hulle, of the Post Office, commented on the findings:

"While the economy is on the up and inflation remains low, our findings suggest that UK households are in danger of not saving enough. Reverting back to old spending habits can be easily done but this will have a detrimental effect on the amount we have to save each year.

"If the UK's savings habits don't improve, we'll be left in a situation where far too many of us have inadequate savings pots, putting more financial stress on people in later life.

"It's crucial that people understand the importance of saving, whether it's paying for a broken boiler to be fixed, or paying for a family holiday or retirement. While it's not always easy to save, putting a little to one side often would go some way to transforming the UK's savings landscape."

The key, then, is to maintain the right balance. Spending may be good for the economy but saving can do wonders for your financial situation, not to mention your peace of mind, and even putting aside small regular amounts can soon add up.

You'll want to start by maximising your tax efficiency with an ISA, giving you the chance to earn interest without the taxman taking a chunk. Finding one that will beat the effects of inflation would be even better, making sure the value of your money won't be eroded over time.

And, if you'll be tempted to delve into your savings simply to keep up with the Joneses, there are things you can do that will help remove some of the temptation. Sylvia Waycot, editor of Moneyfacts.co.uk, comments: "If you don't want to feel guilty about dipping into your savings pot, simply divide your savings into two accounts.

"Consider tying up the money you don't want to use in a notice account, or better still, a fixed rate account that won't allow you to withdraw money. At the same time, open up an account that allows easier access for the residual cash you are saving for holidays etc. That way you can save and spend without the guilt."

Getting into a sensible savings habit can ensure you've got a tidy sum available for the future or for whatever life throws at you, and if you try to set aside at least a small amount each month it can make the world of difference.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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