Are we a nation of savers or spenders?

Steve Webb

Steve Webb

To read the newspapers, you would be in no doubt that we are a nation of spenders.

Credit card debt is apparently at record levels and millions of us have bought second hand cards on leasing deals which consumers love but which seem to be worrying central bankers.

When we are feeling down we indulge in ‘retail therapy’, and we are told that the younger generation are far more interested in spending their money on ‘experiences’ than they are on doing anything as boring as saving.

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Even the sober official statistics seem to bear this out. Earlier this year the Office for National Statistics published its latest estimate of the ‘savings ratio’.

This is (roughly speaking) the percentage of our income that we don’t spend. The figure for the first three months of this year was a record low of 1.7 per cent and the rate had fallen for six successive quarters.

But it is rarely wise to form a judgment about the state of the economy or about consumer behaviour on a single statistic. And this is especially true when it comes to the savings ratio.

It turns out that the figure for the first part of 2017 was particularly low because lots of people were paying lump sum tax bills which fall due in January.

Unless they were all paying these one-off bills out of one month’s wages, many will have been putting money aside last year in order to pay their tax bills at the start of this year. Far from being a sign of reckless spending, this sounds like prudent financial planning.

What about the fall in the savings ratio prior to the start of 2017? After all, the headline figure had still halved in less than three years.

But again, once you dig deeper into the figures you start to realise there is much more going on than households going on a spending spree.

It turns out that the savings ratio figure is heavily affected by how much money is going into our pension, including the money that our employers contribute.

And the fall in the savings ratio is almost wholly explained by changes in the world of pensions, rather than by day-to-day decisions by consumers.

For example, over the last three years, firms have cut back on the amount of money they have been shovelling into their Defined Benefit pension schemes.  

This counts in the figures as reduced ‘savings’. But it doesn’t tell us anything about what the consumer is doing.

And automatic enrolment means an extra 7-8m people are now saving for a pension who weren’t doing so five years ago, which has to be good news.

Some perspective on this issue is provided by the governor of the Bank of England, Mark Carney, who said that, since the financial crash, households had mainly been ‘de-leveraging’ – or running down debt.