UK savers are set to put away a total of £164bn ($231bn) worth of savings and investments this year in a sign that coronavirus has changed how we save as a nation, according to a study.
Despite the financial challenges many families faced, household savings still reached record levels last year, with coronavirus curbing many people’s spending and allowing Brits to accumulate £2,674 each in cash savings alone, on average, since the start of the crisis.
New analysis by mutual Scottish Friendly and the Centre for Economics and Business Research (CEBR) suggest Brits will continue to save at levels well above the historical average, although there will remain a high degree of variation in households’ capacity to save.
After studying 50 years’ worth of household savings data and interviewing 4,000 British adults, Scottish Friendly and CEBR predict that households will set aside 11% of their disposable income this year.
While that is lower than the record 16% Brits saved last year, it is well above the long-term average of 8.5% (2000-2019) and would result in UK adults setting aside £3,023 each (or £164bn in total) by the end of the year.
The data suggests that the pandemic has permanently – or at least semi-permanently – altered the nation’s attitude towards savings, Scottish Friendly and CEBR believe.
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Scottish Friendly and CEBR’s analysis of previous crises reveals that households saved significantly higher proportions of their income in the year after each of the past four major economic downturns than they did during the year preceding each of these downturns.
For example, households saved on average 8% of their income in the run-up to the 2008-09 financial crisis, but this jumped to 12% in the year after the recession.
Similarly, British households tucked away 11% of their income, on average, before the 1990-91 recession but 14% in the year after it.
Interviews with more than 4,000 British adults by Scottish Friendly and CEBR reveal that many Brits plan to save a much higher proportion of their income after coronavirus restrictions are lifted than they did before.
Overall, nearly four in 10 (39%) of British adults – equivalent to 20 million people – say they plan to save more than they did before coronavirus, including 22% who say they plan to save significantly more.
Broken down by age, it is clear that the pandemic has had by far the biggest effect on the savings habits of younger generations.
Some 47% of those aged 18-24 plan to save a higher proportion of their income after the pandemic than before, rising to 55% of those aged 25-34.
Meanwhile, less than a quarter (24%) of respondents aged 55-64 plan to save more than they did before, with 39% saying that the pandemic will have no influence on their savings habits.
Kevin Brown, savings specialist at Scottish Friendly said: “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."
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