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MSE’s Academy of Money
MSE’s Academy of Money

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2 The UK’s savings problem

The figure shows several stacks of coins with the stacks rising in height progressively from left to right. On the right side of these stacks is a jam jar full of coins.
Figure 2 Are you building your savings up or running them down?

The video in the previous section talked about the various reasons for saving money.

Whatever your own reasons for saving money, the reality is that the UK is not very good at doing it! The data in the tables below make this very clear. The UK has a lower savings ratio than most other European countries (Table 1) and over the past twenty years it’s been getting worse (Table 2). Indeed in some years the savings ratio has been negative. This implies that people in the UK have been drawing on, rather than adding to, their savings.

Table 1 European Savings Ratios 2021. Savings as a % of disposable income.
Country Savings Ratio (%)
Sweden 13.8
Ireland 12.7
Netherlands 11.5
Germany 11.1
European Union (average) 7.6
France 4.9
United Kingdom 0.8
Source: OECD (2023)
Table 2 UK Savings Ratio 2000-2018. Savings as a % of disposable income.
Year Savings Ratio (%)
2000 3.4
2004 1.9
2008 -0.6
2012 -2.1
2016 -2.1
2018 0.8
Source: OECD (2023)

Activity 2 Explaining the UK’s poor savings rate

Timing: Allow approximately 5 minutes for this activity

What do you think are the reasons for the UK’s poor savings record?

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There are several likely reasons for the low savings ratio in the UK.

The past decade has seen the value of real income – that is, income after adjusting for price inflation – fall for many people. With less money spare after meeting household bills, savings perhaps inevitably suffer.

Another reason may be the availability of debt. Borrowing money rather than drawing on savings is what many do to cover for life’s emergency spending or, say, the cost of a holiday. Yet this can be a very expensive way of covering such costs.

One reason for the decline in the UK’s savings ratio is that interest rates in the UK have been at historically low levels since the financial crisis in the late 2000s – and reached a record low in 2020 after the Covid-19 pandemic hit the UK. With the interest paid on savings accounts being so low, the incentive to save is less, and many may simply have opted to spend the money instead.

The Covid-19 pandemic did result in an increase in the savings ratio as a result of the reduction in the range of activities people could spend money on (like holidays). As life has slowly returned to normal in 2021 and 2022 the savings ratio has fallen back. The extreme pressure on household budgets caused by the recent surge in energy and other costs is likely to put more downward pressure on the ratio.