Are you saving money as a result of the pandemic lockdown restrictions?
New research suggests that Brits are forecast to put away a total of £164 billion in savings and investments this year, with the Covid pandemic permanently changing our collective savings habits.
Despite the numerous financial challenges faced by families in the past year, household savings have reached new record levels, as our spending has been curbed.
Brits have accumulated an average of £2,674 in cash savings alone since the onset of the pandemic.
The analysis of data from mutual Scottish Friendly and the Centre for Economics and Business Research (CEBR) suggests that we will continue to maintain our newly found savings habits in the future.
However, there will be a high degree of variability in our capacity to save in the future, as has been the case since the pandemic started.
The findings came about after studying 50 years’ worth of household savings data, and by interviewing 4,000 adults. The analysis expects to see households set aside 11% of their disposable income this year.
While saving 11% of disposable income is lower than the record 16% put away, on average, last year, it remains well above the long-term average savings rate of 8.5%, achieved between 2000 and 2019.
If adults manage to save 11% of disposable income this year, it will result in an average of £3,023 each saved by the end of the year.
Analysis of the savings data suggests that our experience of the pandemic has changed attitudes towards savings, for at least the foreseeable future.
Looking at previous economic shocks, households saved significantly higher proportions of their disposable incomes in the year following each crisis, when considering each of the past four major economic downturns.
Ahead of the global financial crisis of 2008/09, households saved an average of 8% of their disposable income. This savings rate rose to an average of 12% in the year following the recession.
Before the 1990/91 recession, the average savings rate was 11%, rising to 14% the following year.
After interviewing more than 4,000 UK adults, Scottish Friendly and CEBR found that many of us plan to save much more of our income after the Covid restrictions are lifted than they did before.
Overall, 39% of those surveyed said they planned to save more than they did before the onset of the pandemic, including 22% who plan to save significantly more.
When the research is considered by age, it appears that the pandemic has had the most significant impact on the savings habits of younger generations.
47% of those aged 18 to 24 plan to save a higher proportion of their income following the pandemic than before, rising to 55% for 25 to 35 year olds.
In comparison, only 24% of 55 to 64 year olds plan to save more following the pandemic than they did before, with 39% saying the pandemic will have no influence on their savings habits.
Kevin Brown, savings specialist at Scottish Friendly, said:
“This study shows that the economic shock caused by the pandemic has impacted many households’ saving and investing habits in a way like never before.
“Recessions in the UK have typically led to a sustained increase in retail saving but there has never been a spike as severe as there was in 2020. Maintaining this level of saving is unsustainable without continued restrictions on spending, but we still expect that collectively households will put away a bigger share of their income this year than they did pre-2020.
“Although many families have faced financial difficulties during the past 12 months, we believe the pandemic has ushered in a new culture of higher saving in the UK, particularly among younger generations. A much higher proportion of savers aged under 35 intend to save more of the money in the aftermath of the pandemic than they did before.
“The question they will have to ask themselves is what is the best destination for the extra cash they intend to save? Building up a healthy savings buffer in easy-to-access cash accounts is sensible but for longer-term saving goals, such as house deposits and retirement, it is wise to consider investment alternatives that offer the potential for greater returns.”