2 The UK’s savings problem
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).
Table 1 European Savings Ratios 2018. Savings as a % of disposable income.
|Country||Savings Ratio (%)|
|European Union (average)||3.70|
Table 2 UK Savings Ratio 2000-2018. Savings as a % of disposable income.
|Year||Savings Ratio (%)|
Activity 2 Explaining the UK’s poor savings rate
What do you think are the reasons for the UK’s poor savings record?
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 March 2020 after the spread of 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.