Do you have more money to squirrel away each month? According to research from Post Office Money, the amount that UK households have available to save has risen in the last year – but it doesn't look as though people are making the most of it.
Growing potential, but lack of will
The Future of Savings study found that the amount of money available for UK households to save (their 'potential saving') has increased by an average of £124 per household over the last year, meaning that once housing and living costs have been taken into account – including everything from mortgage payments to holidays, food and nights out – the amount left available to save per year is now an average of £4,784 per household.
However, despite this improvement – and the amount that the average person has to squirrel away – a worrying number of people aren't taking advantage. In fact, 26% of respondents admitted that they saved nothing at all in the last 12 months, and 17% have never saved anything. This means that savings accounts could be far emptier than is ideal, or even non-existent, leaving a huge number of people unprepared for emergencies.
According to Post Office Money's Nick Kennett, much of the reluctance to save could simply be because consumers are so happy to be able to spend again. Many had to significantly tighten their purse strings during the recession, but the recent recovery – not to mention the low inflation rate and fall in unemployment – have boosted consumers' financial confidence, and they're making the most of their new-found spending power by shopping rather than saving.
This has led to many people actually reducing the amount they're stashing away, while others have stopped saving altogether. This could have long-term consequences: "Although the cost of living crisis appears to be easing for many, it is important for them to think about the future and ensure they take a long-term approach to their savings," said Nick. "By cultivating a habit when times are good they will be in a far better position should things – inevitably – become more challenging again."
Forecasts suggest that a recovery in inflation, not to mention the potential for base rate to rise in the next year, means that the level of potential savings could decline slightly in 2016, falling to an average of £4,778. It could recover thereafter – the average amount available to save could rise by 17% by 2020, with the annual potential savings balance expected to be to £5,591 – but it's thought that many UK households are unlikely to feel the benefit.
Indeed, while the figure may be projected to rise, in real terms, it may not actually be that impressive. The effects of inflation (and related factors) means that the £5,591 figure will actually only be equivalent to £4,712 in today's prices, meaning that families could be marginally worse off.
That's why it's so important get saving now – your potential to save could deteriorate in the future, particularly when base rate rises and mortgage rates follow suit – and that's before we even get to the importance of having a suitable safety net. Those who have never saved at all should take particularly swift action, because an emergency fund could make all the difference should you need it.
"While it's not always easy to save, putting a little to one side on a regular basis can make all the difference in the long run," concluded Nick. "There are no 'quick-wins' when it comes to achieving long-term financial goals, such as saving for retirement, so it is important to plan ahead."
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