ANALYSIS:People remain worried and are saving to pay off debts, the latest ESRI research shows
THE DECISIONS people make about whether they will save, and the amount to save, are important ones, not only for themselves but also for the wider economy. This is particularly the case at present.
Official statistics show that the personal savings ratio has risen substantially in recent years. Much of this increase, from an economics perspective, has been due to an increase in debt repayment. As disposable income is either spent or saved, the decisions made by individuals about their savings intentions have important implications for personal consumption growth and the input this makes to economic recovery. It has been estimated that each one percentage point fall in the savings rate amounts to a consumption increase of almost €1 billion.
The Nationwide UK Ireland/ESRI Savings Index published yesterday shows that consumers have become more positive towards savings, driven in part by an increase in the number of regular savers.
The savings index is constructed from monthly research on the attitudes of Irish consumers towards savings and covers the period since January 2010. The individual questions give an indication of consumer perceptions and intentions about saving.
However, on their own they do not provide an overall measure. Thus, the responses to a number of questions are aggregated to provide an overall savings index. By measuring peoples’ responses to a range of questions on their attitudes and behaviour about saving as well as conditions in the wider environment, the survey provides a snapshot of individuals views with regard to at least one element of their personal finances.
Generally, saving regularly is recognised as important, not only overall but also for the individual consumers themselves. This has been consistent over the life of the index. About 60 per cent of consumers think it is important to save regularly. Despite this, about one in three consumers are still not saving anything.
When asked about the amount they were saving, close to 55 per cent feel that it is “a bit less” or “a lot less” than they should be saving. Even though a majority of consumers think they are saving less than they should, most consumers think they will be saving the same amount in six months time. Only 13 per cent expect to be saving more in the future than at present, while over 23 per cent think that they will be saving less in six months time. Over a third of consumers, 35 per cent, think that now is a good time to save given the current economic situation. This is matched by the proportion of consumers, 37 per cent, who think that now is a bad time to save given the current economic situation, although this is down from 45 per cent in April.
Consumers are asked about their intentions for any surplus money. Paying down debt is still the most popular use for spare cash with 50 per cent preferring this option, while 38 per cent of consumers expressed a preference to save any spare cash they have available, an increase from 29 per cent in April 2010.
The savings index research also records individuals’ motivations for saving and the average amount being saved each month. The largest proportion of people saving have a precautionary motive, with 44 per cent indicating they are saving for unexpected expenses. Education/training and holidays are the next most popular reasons for saving at 12 per cent while saving in case income falls is next at 10 per cent. Of those consumers who are able to save occasionally or regularly the largest proportion, 30 per cent, save between €51 and €100 a month.
Attitudes to saving can vary by age group. The data collected as part of the survey allows us some insights into this variation. While there was an increase in the number saving regularly, this trend is more apparent amongst the under 50s where there has been a seven point increase to 40 per cent, while the equivalent shift in over 50s is a three point increase to 42 per cent.
Among the under 50s in May, 37 per cent say they are saving what they think they should, an increase of eight points since April. In contrast, while 44 per cent of over 50s say they are saving what they think they should, this represents a decline on the previous month.
Overall the survey confirms our perceptions of the difficulties facing consumers at present. Consumers are not saving as much as they think they should but do not see an increase in savings in the near future. Any spare cash would be used to reduce debt levels or will be saved, and for the majority any saving that they can undertake is to meet unexpected expenses. These findings are consistent with the uncertainty faced by consumers at present and suggest that for the moment, any additional income may well be used to repair the individual’s balance sheet rather than spent.
David Duffy is a researcher at the Economic and Social Research Institute and was the chief researcher on the savings index published yesterday