Why save? There seem very few positive reasons to do so right now. The suggestion from the Deputy Governor of the Bank of England, Paul Tucker, that we might have to institute “negative savings rates” is the latest in a long line of excuses to forget about that rainy day in the future when you might need some money to fall back on.
Others are easily to hand; the “squeezed middle” has been hit hard by a mixture of higher taxes, from VAT to council tax; inflation on key unavoidable spends such as fuel, energy and public transport; and by the less obvious but no less pernicious impact of cuts in public spending that have to be made up from private means – helping kids through college and elderly relatives to live in dignity. And, of course, wage rises have been hard to come by in the first place. So there is little surprise that there is not much being put away by the average family; £10,000 would be an exceptional pot for such a UK household.
To some degree, it was always thus. The British have rarely been great savers, and have always found the pursuit of consumerism an extraordinarily pleasurable distraction. We may not make ships or cars any more, but there is no nation on Earth that rivals the British retail sector for its inventiveness, style, variety, choice and efficiency. The Americans come close, but fall down on fresh fruit’n’veg.
Joys of shopping
One of the most benign things that has happened to suburban Britain in the past 10 years or so has been the emergence of Tesco Metro, Sainsbury’s Local and the rest, which at least provide the option of a fresh apple or raw carrot in what used to be “food deserts”. For that alone, we should forgive them the horse-meat mistakes. As the current TV series chronicling the life of Mr Selfridge reminds us, we love shopping as a leisure activity in this country, and have done so for a very long time.
Contrast that with financial services. This is no one’s idea of fun. We know, instinctively, that providers of investments rip us off; annual charges, entry fees, financial advisers’ fees and all the rest of those little humiliating scams make us rightly suspicious of investing in even the soundest unit trust, investment trust, open-ended investment company, or whatever.
Pensions scandals from Maxwell to Equitable Life have led to an understandable scepticism. Even before the current regime of ultra-low interest rates, savers in “cash” accounts – building society and bank deposits – normally lost purchasing power. In the 1970s and 1980s especially, we lost money on those savings accounts, but inflation disguised it. In fact, the real-terms loss from having to pay, say, 0.5 per cent a year for the privilege of holding a building society passbook when inflation is around 2 per cent is a lot less than the world of 15 per cent interest rates but 20 per cent inflation.
And yet, of course, saving is not, and never has been, as bleak as it seems. That is because so many people have put large amounts into their homes; a tax-free investment that you can also consume day-by-day and into retirement. Homes are more than lived in or enjoyed; glamorous TV presenters take us round the latest self-build or renovation project in some lovely corner of the countryside; there are lavish glossy magazines devoted to unaffordable homes; newspapers run competitions to win “dream cottages”; browsing Rightmove has become a sort of masochistic pleasure for the young.
Against that lot, Money Box Live and the Investors Chronicle don’t really stand much of a chance of engaging us. No one ever invited friends round for cocktails to admire their annual pension statement rather than the new patio. Even after recent corrections, the average home is still worth about three times what it was when Tony Blair was elected prime minister for the first time, which is not as long ago as it feels, and most investments cannot match that tax-free return.
Does that mean we can all stop worrying about the savings gap, cash in our homes, trade down and retire early after all on the proceeds? Not really. For a start, the only place property looks sound right now is in the South of the country. Elsewhere, the outlook is bleak; values are still below their 2007 peaks, and unlikely to revert to those highs even in cash terms before the end of this decade. Factor in inflation and the pay-back time stretches still further into the future. If you have a half million left over from trading down, lucky you; you might get £25,000 a year out of it. But, most British homes are not in that bracket; the average value is about £170,000, and that’s not going to get you very far, even if you move into a caravan.
So that is why we should all save, despite the dullness of it, the sharks, the scams and the risk that it could all go wrong. We should buy property, buy shares, buy investment trusts and the like; we should do that even though it requires application to some very boring detail, and, more difficult, an admission that old age and reduced circumstances come to us all. It is not as much fun as a trip to the shopping mall come Saturday, but one day it will mean that you can go to the mall to buy stuff rather than because you need to get warm and can’t afford to put the heating on at home.