The poorest 20% of UK households have had no spare money available to save since 2002 and are likely to be stuck without potential savings until 2020, according to research published on Monday.
In contrast to the highest-earning 20% of the population, who will have an average £18,680 to save this year, the poorest families are caught in a savings wasteland, having spent an average £1,910 more than they have earned this year with nothing left to put aside, the Post Office Future of Savings report says..
Compiled by the Centre for Economics and Business Research, the study reveals that the savings gap between the richest 20% and poorest 20% per cent of households currently stands at more than £20,000 a year. But even though this is set to go down to £19,020 next year and continue reducing year or year until it reaches £15,370 in 2018, it does not mean that poor families are going to be any better off.
“At face value the savings gap between the richest and poorest appears to be shrinking,” the Post Office head of savings and investments, Henk Van Hulle said. “However this is largely due to wealthier households choosing to save less of their income (and spend more) as consumer confidence in the economic recovery increases.”
Meanwhile the poorest households will remain in the red without any chance of boosting their savings this decade, he said: “We are still in the midst of a savings crunch for a significant number of people – made all the more worrying as their outgoings continue to outstrip their income.”
Overall, despite a growing sense of optimism that the economy has turned a corner, the amount of money available for households to save – their “potential saving” – is on the decline. Once all housing and living costs have been taken into account, the amount families have left over each year to put into savings is set to fall for the foreseeable future. The rising cost of living coupled with increasing consumer confidence is thought to be the driver behind this forecast.
On average over 2014, UK households are expected to have £3,630 available to save, the same amount available to households in the 1960s, once adjusted for inflation. A downward trend is predicted over the coming years to £3,518 by the end of 2015 and £2,944 a further three years down the line at the end of 2018, an overall decline of 33%.
The report concludes that, while increased consumer spending provides a boost to the economy, the reality of the situation is that people may be starting to spend too much and save too little, with the findings indicating that the UK is in danger of returning to pre-recession spending habits.
“Savings are predicted to drop on average for everyone in the UK in the next few years,” says Van Hulle. “It is clear that this problem needs to be addressed. Those who do have the ability to save should build up a buffer while they can – as even a ‘little and often’ approach can make a difference.”
