As the government grapples with how best to support households facing the biggest cost-of-living crisis in a generation, the evidence already suggests that inflation is having a major impact on personal finances. Cost pressures are squeezing many households’ finances, with four in ten (39 per cent) having already dipped into their savings to cover basic living costs. But as the current climate highlights how fragile personal finances are, it also demonstrates how low financial resilience has become a national issue.
The ability and willingness to save is critical in addressing the long- and short-term financial resilience of individuals and the wider economy, helping households to weather any emergency and fund future life goals. Without savings, those families that are forced to fund day-to-day expenses by relying on personal credit will face a multitude of costs, including on their mental as well as financial health. Recent research from Yorkshire Building Society (YBS) bears this out, highlighting that nearly half (46 per cent) of UK adults are already worrying about the current cost-of-living crisis and the negative impact this will have on their mental well-being.
It is abundantly clear that for a growing number of households, the stark reality of the current crisis makes saving even the smallest amount an impossibility. But over the longer term, the key to increasing household financial resilience is the building of a regular savings habit. This September, YBS is taking a leading role in supporting the launch of the inaugural UK Savings Week, which takes place from 26 September to 2 October. The week, an annual event being introduced through the collaboration of a number of credit unions, building societies, consumer groups and debt charities, aims to get people engaged with saving, whether they are already savers, have no savings but could save a little, or who are unable to save right now but may be able to when times improve.
You might say that as an organisation that benefits from looking after millions of peoples’ savings it’s in our interest to support this and you’d be right, but only because we think it’s in everyone’s interests that more people save. As a nation we have forgotten how important it is and over the coming weeks, months and years organisations like my own will be at the forefront of reversing that.
Even before the onset of the Covid pandemic, it was estimated that 11.5 million households didn’t have £100 of savings to fall back upon in an emergency. And our own recent research showed more than one in ten (12 per cent) are currently not saving anything on a monthly basis. As a nation, we find ourselves with one of the lowest personal savings rates in Europe with 6.6 per cent of gross household disposable income being put away. In comparison, France’s average is 15.5 per cent and Germany’s is 10.8 per cent, while Luxembourg sits top of the table with 23.6 per cent.
Almost one in five people (17 per cent) people say a lack of incentive and low interest rates are a barrier to saving. I completely understand why: although we and other building societies continue to offer a better average return than the high-street banks, especially having passed on significant increases following the Bank of England rate rises this year, on the whole, savers are receiving low levels of interest that don’t serve as an incentive.
As a country we must adapt to that and look beyond savings solely as a means of making those who are already comfortably off even better off, and think of it as a natural thing for everyone to do when they can afford it; so that, in times like these, people have a much-needed emergency buffer to fall back on, with less reliance on costly short-term loans or increasing debt to manage unexpected bills.
That means making a particular effort to help those who aren’t putting anything away at the moment because of the consequences at an individual, economic and social level.
Financial concerns are one of the biggest causes of poor mental health. For businesses, money worries can reduce workers’ effectiveness, which naturally has an impact on productivity levels, and firms’ bottom lines.
With the cost of living hitting people hard, it’s also crucial that everyone can access support and advice when it is most needed. The expansion of YBS’s partnership with Citizens Advice, providing advice services in many of our branches to the public, is giving real help to those in need, in a true demonstration of our broader purpose as a building society.
As well as improving access to information on savings and encouraging people to form a new habit, strengthening financial capability and education is just as important. We know that learning how to effectively manage finances is a crucial life skill. That means starting with our future generations – it’s vital that as a country we introduce financial education earlier into the national curriculum to equip young people with the skills to manage what money they, and their families, have. We want to ensure everyone can look after their money, which we’ll continue to do with our financial literacy lessons in schools across the country. YBS supports children’s financial education through its Money Minds programme aimed at young people aged five to 19, through sessions in its branches and via an online programme.
Throughout September in support of UK Savings Week, our colleagues will be completing Money Minds sessions with local schools and community groups. Topics range from keeping money safe and planning a party to learn budgeting skills, to calculating interest, and the responsibility of repaying loans.
We’re committed to getting the UK saving. We can get there by encouraging regular saving and expanding financial education. We want other businesses, government and non-savers everywhere to join in to make sure saving isn’t just a one-off week of focus, but an established good habit making people healthier, more productive and more resilient to future opportunities and challenges.