Figures recently released by the Bank of England show that the amount families are borrowing against the value of their property is on the increase. The household equity index hit a two-year high of 6.7% in the last quarter of 2006, falling only slightly to 6.1% for the first quarter of 2007. As property prices rise, households are tapping into 'unused equity' in their property, and borrowing more money from their mortgages to meet their financial needs. The most likely reason for this is to pay off credit card debts from increased spending.
This appears to mean people in the UK are happy to continue spending - even if it means borrowing more to fund this - but are not thinking about saving. This message is backed up by research recently carried out by AEGON into attitudes towards saving for the future, entitled "A rose-tinted future?"
The research found that 54% of people surveyed said they plan for the future, while 46% admitted they live for today. Over the last few years we have built up a picture in the UK of people who are putting spending above savings in their list of priorities, but to be faced with such stark statistics backing this up is a shock. People surveyed gave the main reasons for this behaviour as a lack of understanding of financial products and a distrust of the financial services industry.
There's no doubt the industry has to change to help turn around its public image. There is no easy fix for this, but the solutions we hope will emerge from the Retail Distribution Review could help enormously in rebuilding trust and confidence.
However, I wonder if the reasons given are a convenient truth. There are easy and simple ways of saving money if people want to use them, for example building society accounts. However, it appears people aren't using any savings methods at all (unless it's the 'under the bed' ones).
Instead, it looks like we, as a nation, have lost the savings habit, preferring instead to live for the moment and avoiding contemplating life when we are older. The research shows that this trend for 'living for today' is slightly higher among women, young adults and those entering middle age. These are probably the groups with the least disposable income and the most calls on their purse, for example to fund student loans or to spend on the family and the family home.
The research also shows that even though some people are saving for their retirement, we in the UK are wearing rose-tinted glasses as we look towards the future. We assume we're going to be better off in retirement than is likely to be the case.
Less than four in ten of the people surveyed believe they're on track to fund the lifestyle they want in retirement, and two in ten admitted they didn't have any savings or pension at all. So, as a nation we need to find a way of turning this around and recapturing the savings habit. Part of the answer may lie in people facing the unpalatable truth that in order to retire when they want with the lifestyle they want, they have to give up some luxuries of their lifestyle today.
This is a message no-one wants to hear. However, in the run-up to 2012, and the introduction of auto-enrolment into pensions, the Government has an opportunity to tackle this challenge head on. To spell out these difficult choices and to re-educate people about making the right decisions for their future. That way the UK can get back the savings habit.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress