UK Household Savings Rate at successive record lows

[Noedig]

TL:DR: Did I fall through a dimension warp into Spendy Spendy Land?

From March: "According to figures published by the Office for National Statistics, the proportion of their income that households saved fell to 3.3 per cent in the fourth quarter of 2016, its lowest level since records began in 1963."

From June: "According to new figures from the Office for National Statistics, 1.7 per cent of income was left unspent in the first quarter of 2017, the lowest savings ratio since comparable records began in 1963.

I feel like ranting as doth a bearded loon-eyed preacher, hanging out in the local shopping mall, handing out pamphlets saying "Doom!" in big bold letters, and trying to get the mallsters to repent of their spendthrift ways.

Yes living in the UK is expensive and wage inflation has not matched price inflation for years ... but employment is very high, people still seem to get their 1k smartphones, trainers, gym memberships and very fast new cars (loans with "PCP finance"). And 1.7% is the *average* figure. What the hell is wrong with almost everyone?

I had my "come to Jesus" about FI a few years back: helped me to identify foolish spending (status goods, getting sloshed in restaurants, buying new cars ...) and eject it from my life: but I was always a saver, except when I was so poor that I was living hand to mouth. There is official confirmation that I'm in a small small minority, a remote outlier and edge case. Maybe I would feel more comfortable in a country where people were a bit more prudent?. Not sure where that would be. Austria? Hmm.... maybe not then (sure it's a great place, no offense intended).

Where are the stoical "make do and mend" Brits of yore ?

Actually, I know the answer to that one: dead or ancient, phased out in the 50's by post war hedonists...

...followed by 60's hippies/baby boomers, then 70s teen punks, then by 80s Acid House Ravers (who luckily surfed the jobs/cheap houses/tech boom#1), then by 90s Generation X - then by generation snowflake (who I think, have a hard road ahead).

Stone me.

[chenda]

Do you have a link for this ? There is nothing prominent of the ONS site.

[saving-10-years]

@Chenda, don't know whether this is the stuff @Noedig refers to but its the same 3.3% reduction message https://www.theguardian.com/money/2017/ ... gn-economy and this sort of report does not give a rosy picture ...

The Lifetime Savings Challenge Report 2017, which seeks to understand how employees are saving, where they need help, and the level of support available, reveals that there is a distinct savings challenge that needs to be addressed. A third (33 per cent) of UK employees are saving less than £50 a month, which includes one in five (20 per cent) who admit to not saving anything at all.

http://smallbusiness.co.uk/employers-fa ... p-2541198/

I share @Noedig's concerns. But wonder how they are counting savings. Is this banks telling us people don't save enough with them or is this self-reporting (in which case how representative). Most young people I know are obsessed with buying a house. I suspect that they would see this as saving or investing in the future.

[ducknalddon]

I wonder how much of it is down to housing, when supply is so constrained prices will rise as far as is affordable. That won't leave much left for saving.

[vexed87]

Shocking and deplorable as it may be, we should also be careful what we wish for. If consumer borrowing or spending on consumer goods slows down, poof goes those all time high share prices of FTSE 100 companies and quite possibly your FI aspirations...

There is a reason why spend spend spend is the mantra of the day. Most men don't like to tighten their belt while the getting is good. Isn't it human nature to burn through resources which seem abundant (steady income streams in this context)? Make do and mend culture only bubbles to the surface after a good ole crisis, we haven't had one of those in a good long while now, so the statistics don't surprise me. Most people don't see the point in saving when they can just borrow to cover their ass. Most people hate fat cats, landlords, etc etc, but gobble up all the marketing, advertising and consumption they can.

Most don't have the self control to join the rentier class, which is a good thing as far as FI is concerned, because the concept wouldn't work without reckless consumption and the complicity (or exploitation) of the masses.

[chenda]

There is a reason why spend spend spend is the mantra of the day. Most men don't like to tighten their belt while the getting is good. Isn't it human nature to burn through resources which seem abundant (steady income streams in this context)?

I think that's obesity

[vexed87]

The beauty of thinking in systems

[Earlybath]

Macro no ? Reduced public spending = increased private spending.

[vexed87]

@Earlybath, not sure if you are from the UK, but we have socialised healthcare and welfare institutions, whilst ownership of these institutions is gradually moving into private hands, taxpayers still foot the bill. In theory, those who earn more, pay more, so the people who use the health service and welfare the most are actually the ones who earn the least, so a decrease in public spending wouldn't necessarily be met with an increase in private spending, just more suffering and lower quality of life (for the less well off). The reason for reduced savings is an increase in consumption of goods and services combined with stagnant wages and falling productivity per capita here in the UK. It seems most of the recent (last decade or two) GDP increases in the UK are on the back of bubble economics and privatisation of previously publicly owned institutions, couple that the increasing wealth inequality and you can see why household savings rates would plummet. Bubble economics typically only benefit those with access to the relevant capital.

Most people prefer to maintain their pre-existing lifestyles, rather than scale back spending and maintain savings rates in accordance with the current financial climate. For some reason, and I suspect that our culture that celebrates and demands linear human progress and a media with an agenda to ensure you consume as much as possible is partly to blame, as our 'recovery' from the great recession is well under way, we should be returning to our pre-scheduled and eternal growth based prosperity any time now. It's really no wonder most people are not anxious about saving for the future.

[7Wannabe5]

Maybe try to gain a more objective perspective on the situation? Are there any circumstances under which it would be most rational choice in alignment with self-interest to spend current funds up to the 98.5% margin on consumer goods?

[vexed87]

Ohh ohh!! *thrusts hand into air*

Low return on cash savings, low interest rates on debt?
Of course, both were deliberate policy choices... to encourage more spending in order deter deflation after the last crash.

[7Wannabe5]

@vexed87:

Yes, those factors would influence the unbiased spender.

However, what I am considering, based on my observation of the behavior of humans in my social circle, is that it might be somewhat revealing to not differentiate between saving and spending. For instance, Imelda Marcos was saving money in the form of shoes, and Jacob is spending money in the form of shares of industrial stock. You could even say that I am currently saving money in the form of excess body fat (sigh.)

When you read personal accounts about investing in the stock market prior to the big crash in the 1920s in the U.S., you get the impression that it was easy, fun and there was a very low barrier to entry. Any corner newsboy with a spare nickel in his pocket could get in the game and win. The underclass in the U.S. currently spends more than 8% of its disposable income on lottery tickets. Senior citizens with fixed incomes are found in large numbers at casinos. So, I would suggest that part of the problem is regulation and marketing that somehow inhibits entry or psychological interest. The reason why I say this is that I have observed that most people who are active investors do behave as if they find the activity fun and interesting.

[vexed87]

I'm not sure if the perception of the paper boy getting in on the game back in 1920 was really true, but in a way, we're all in on it this time around anyway because our pension schemes and some public spending (funded by treasury bonds) depend on it. One way or another, when the crash happened, a lot of people were burned and didn't buy into those institutions ever again. Cash under the mattress instead comes to mind. The modern day equivalent, buy gold if you're a pessimist, bit coin if your an optimist, or more pragmatic among us, do both and keep a little cash to boot

[7Wannabe5]

I am likely going through a phase where I am rendering myself idiotic through systems analysis, but my question is what is really meant, or what purpose is served, by labeling one flow of currency with the verb "saving" and the other with the verb "spending?" It seems to me that there are a good many assumptions wrapped up and somehow disappeared in that dichotomy, given that on some level the only consumption any human engages in is the burning of enough kcals to keep body warm and structurally intact.

[Riggerjack]

@ vexed87

I don't follow UK numbers, but what you stated startled me.

The reason for reduced savings is an increase in consumption of goods and services combined with stagnant wages and falling productivity per capita here in the UK. It seems most of the recent (last decade or two) GDP increases in the UK are on the back of bubble economics and privatisation of previously publicly owned institutions,

Falling productivity per capita. Is that because of lower labor participation, or have you actually dropped productivity per worker/hour?

I ask, because Felix and I did this dance of numbers (narrative) deconstruction a few years back, based on US numbers, and the narrative only holds up here if you don't bother to look into them. For instance, Felix brought up the stagnation of real incomes since the 70's, here. But that only works if you only look at the median, not the mean, nor any other tranche. In other words, the rich got richer, the poor got richer, and the man in the middle held his ground.

But that isn't the kind if narrative to garner anyone's support, as there is no victim class. However, when you say that the median has stagnated for 40 years, while not getting a proportional increase to match productivity, that makes people feel somehow screwed. And people who feel somehow screwed get angry, and that can be useful.

For more on the direct effect of productivity to the workings of an economy, and benefits to workers, see:
https://pseudoerasmus.com/2017/10/02/ijd/
He digs into the productivity differences between India and Japan in cotton mills from around 1900-1930. Comparing numbers between different economies and different cultures is dangerous, but he seems to have put a lot of thought into minimizing those effects, and pushing the math to compare productivity per worker/hour, and productivity per spindle, trying to match equipment up and track productivity improvement by technology as well.

He doesn't break it down into easy support for any particular narrative, to my reading.

[jacob]

@7 - Consider what many people (especially in the FIRE bubble) consider "saving" to be equivalent to "spending" on capital (like abstract businesses, deprecating machines, contracts for future promises that may or may not be met, ...). In a systemic sense, saving, spending, and investing are all quite dissimilar, but in common vernacular, those three terms are consistently confused.

[ducknalddon]

UK productivity has plateaued since the financial crisis however we have managed to avoid some of the unemployment problems other European countries have had. Given the choice I think we probably made the right decision.

https://www.ons.gov.uk/employmentandlab ... /a4ym/prdy

[Seppia]

deprecating machines

I now have this image of a big machine that keeps insulting its operator for hours on end

[7Wannabe5]

@jacob:

Yes, I agree, but I think it goes even further than you suggested.

For instance, recently I sold a piece of real property for cash with a self-hacked quit claim contract. Then I took the wad of cash and fed it into an ATM with directions to enter further into specific contract with the entity that is my primary bank. Since I was not Sovereign Ruler over the vacant lot I sold, what I really transferred to the gentleman hailing from North Africa via New Jersey with the assistance of a Notary Public recently immigrated from Bangladesh, was a collection of rights and responsibilities tied to the piece of real property and its real attributes, inclusive of a mature mulberry tree from which I had actually consumed berries. Then for a brief period, I was actually held bills of U.S. currency on my person. Then I chose to simultaneously purchase an insurance policy and grant the lending of the value of the bills by depositing them into my savings account. (This was fun for me, because for some perverse reason I seem to enjoy having a lifestyle that results in the largest possible ratio of tax return complexity/income. )

My multi-millionaire friend who grew up on a farm in the 40s told me that the house was the crappiest building on the property. The barn and the crib were of better construction and more frequently maintained, because those buildings stored wealth in the form of "saved" crops to be further invested in the feeding of productive assets of dairy cows or fattening Angus. Nothing was abstraction. Seed money was literally seed money.

The average productive lifespan of a public company is now less than the average productive lifespan of an apple tree. The ugly Santa ceramic candy dish I keep in my Sentimental Storage Suitcase has persisted more than twice as long.

[vexed87]

@sclass, yes the figures are per person, per hour. My wording might be slightly misleading. While productivity per capita has fallen if you look at specific time points, overall it has mostly remained stagnant since immediately after the recession... as @duck mentioned.

Here are 4 theories why productivity per capita has remained stagnant, or put otherwise why it has been failing to recover in accordance with expectations (not raising back up to pre-crisis levels);

Four theories to explain the UK’s productivity woes - open FT to bypass paywall
1. Companies have invested too little
2. Productivity is being measured in the wrong way
3. Low rates have sustained zombie companies
4. Businesses have held on to unproductive workers

I think there's truth behind each point, and yes, the narrative you prefer to run with determines how you spin the theories, and how you order them in importance, though which ever way you spin it, the numbers are concerning as stagnant productivity impacts wider society, even if specific tranches of class are still doing ok.

Your right to challenge the narratives too, it's too easy to take these reports at face value, yet very often the data says something else!

My own theory, which I'm surprised is not included in the number above is that the kinds of occupation that people find themselves in now are inherently less productive, i.e. greater proportion of society find themselves confined to careers in the service industry, i.e. recent graduates stuck in the equivalent of cashier or shelf stacking roles, which naturally have lower levels productivity vs. higher salaried white collar work which was easier to find before 07-08. There's also the impact of productive roles going overseas.