Are you Saving for tomorrow?

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Are you Saving for tomorrow?

If there's one lesson to come out of the financial crisis and subsequent recession, it's that British people need to save more.

With a recession that came almost out of nowhere, it has had devastating consequences on people living in the UK, leaving many jobless, strapped for cash and even without their homes because they have not been able to keep up with their mortgage repayments.

Latest government figures put the number of unemployed in the UK at 2.47 million for the three month period to August 2009, this is a whole 88,000 more people who are unemployed than in the prior three month period.

At the same time, the number of homes being taken back into possession by lenders is also increasing, with the Council of Mortgage Lenders (CML) estimating that there were 11,400 possession cases in the second quarter of 2009 (March-June).

On the bright side, this was however a drop on the 12,700 possession cases seen in the first quarter of 2009 (Jan-March).

Although there are signs the UK is beginning to pull out of the recession, the limelight is now being thrown on how we can better protect ourselves from further recessions that may occur in the future, with attention turning to savings.

Some economists believe that the pain felt by the recession could have been lessened if Britain had a better savings culture embedded. As it is, the UK is relatively poor at saving.

Recent research by Scottish Widows suggests that as many as 30m Brits have not protected themselves for the long term should the worst happen and they lose their household's main income.

While, National Savings & Investments (NS&I) says there is a shortfall between the ideal amount we should be saving which is £210.26 a month on average, and the actual amount we are saving which is £90.21 a month.

It goes as far to say that the ideal amount people want to save is around 15 per cent of their total income.

Data also presented by the national Savings and investments agency suggests that the ideal amount people want to save represents over 15 per cent of total income.
In fact, as a country it seems we are more in love with debt than saving and have more than doubled our outstanding household debt since 2000 to reach £1.4 trillion, the Institute for Public Policy Research (IPPR) claims.

Two main reasons to save

Tony Dolphin, a senior economist at the IPPR warns that life is unpredictable so it is useful to put money aside in case of short-term emergencies. It is generally accepted that a household should have savings that can be easily accessible to cover between 3-6 months of living costs.

At the same time, there is also a need to save for the long term, for example for retirement, so it is wise to view these type of savings as money that should only be accessed in extreme circumstances.

Although we are not the best savers when compared with some other European countries which have a higher savings rate than the UK, we are getting better.
Dolphin explained: "We've seen big changes in debt and borrowing since the start of the recession and I hope we see the savings rate rise."

However he does warn that our attitude to saving will all depend on the housing market.

The future for savings

In recent years, people living in the UK have been predominantly more concerned with getting on the property ladder than saving, and with 100 per cent mortgages once in abundance, there really was no incentive to save.

But now, as lenders continue to be restrictive with their lending policies and 100 per cent mortgages are almost no more, Stephen Haddrill, director general of the ABI believes the UK will finally begin to get serious about saving.

He added: "We have seen a shift in the banks willingness to lend and a move to 75 per cent loan-to-value mortgages. The additional 25 per cent has to come from somewhere, so I think this need will kick-start saving again. "