Words About Things

Last September I wrote a post about a survey which showed that 40 percent of Britons felt that they were unable to save money due to the tough economic climate. This statistic was shocking but not unfounded, unemployment was at almost 2.5 million and the recession was hitting hard. At the time 1 in 4 people surveyed had no savings at all which left them in a very precarious state financially. Others had savings already but were unable to increase them despite the looming threat of unemployment.

Although we are now out of the Recession things are recovering very slowly and many are still struggling. Consumer confidence remains low and a ‘double dip’ recession is a strong possibility. Whilst this all seems very negative it’s not all bad news. A survey completed in July shows that we are in a slightly more positive position this year: savings accounts balances at a major high street bank actually increased by £1.4 billion in the first five months of 2010.

Some people are still unable to move money from their current account to a savings account. 62 percent of those asked said that they were saving ‘much less than they should be’ and 22 percent were not currently saving at all. The reduction in personal saving is mirrored by the reduction in consumer spending, both show that lack of consumer confidence is having a negative effect on the economy. The Bank of England will publish their August Inflation Report on Wednesday and it is expected to predict a 2 percent growth in inflation next year. This is much less than previously predicted, the outlook as been revised to to continuing economic problems.

I’m no economist but it seems to me that what we need right now is some good news. A little growth in the economy would lead to increased borrowing and spending. In turn this would lead to more growth and increased job security for those reliant on consumer spending. All it would take is for some positivity to spread and not be destroyed by another wave of bad news. I’m feeling helpful so i’ll get us started: I just found £2.50 in change down the back of the sofa…

As was expected George Osborne‘s first budget as Chancellor was not an easy pill to swallow. Few would envy Osborne’s task of cutting spending and increasing VAT whilst still trying to maintain some sort of popularity amongst voters. It was clear that some difficult decisions would need to be made in order to attempt to steer the country towards profitability once again. Mr Osbourne had stated that his budget would be ‘tough but fair’ although some thought that that might mean unfairly tough on some.

What is most clear is that we need to improve the state of the economy in a fast yet sustainable way. Corporations are turning to their  treasury management systems and finding that they don’t have enough funds to support the growth they need to achieve.  Individuals are finding that they are unable to save and afraid to spend.

The Chancellor has suggested that he will be able to cut borrowing from 10% of GDP to 1% within 5 years. The following measures where introduced in today’s budget:

1. VAT will rise from 17.5% to 20% in January 2011.

2. Duty on Alcohol, cigarettes and fuel will not rise.

3. Child benefits will be fixed for three years. Tax credits and housing benefits will be reduced.

4. Public sector worker earning over £21,000 will have their pay frozen.

All full list of changes can be found on the BBC’s Budget page.

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A recent study by the financial services company Prudential has shown that only 18% of people nearing retirement age feel that they have saved enough money for a comfortable retirement. Of the 1,001 people interviewed for the study 57% said that they would be willing to work past their retirement age in order to receive more money once they did stop working. While most had money saved up in financial investments and current accounts they did not feel that it was enough to maintain the standard of living they had become accustomed to.

Around 25% of people due to retire within the next year said that they would be happy to work for another 5 years in order to save more money. 7% of participants had considered working for an extra 10 years in order to make their retirement years more comfortable. Only 1 in 5 felt that they were financially ready to retire. Vince Smith-Hughes of Prudential said that these figure represent an issue faced by many of retirement age:

“”Working beyond the normal retirement age is already a reality for many people who either have insufficient savings or simply want a greater income when they do come to retire. But for a lot of people planning to retire in the very near future the state retirement age is sacred and their expectation has always been to retire at 65. Once they reach that milestone, regardless of the amount of money they have, they simply do not want to work anymore.”

Around a third of people expect their standard of living to fall once they retire compared to only 12% who expect their retirement to account for a raise in their standard of living. Most of us look forward to our retirement but these figures show that we must focus on preparing financially in order to be relaxed about our futures. Without significant saving we may find that retirement is a struggle when it should be a pleasure.

A recent report quoted in the Times says that one in five men have a savings account that their partner knows nothing about. These accounts contain on average around £2000 hidden away from prying eyes. Whilst it is not unusual to have separate savings accounts it may come as a surprise to some women that their boyfriend or husband has a secret account. In contrast only 10% of women had an account that their partner did not know about.

One theory is that men wish to have a portion of their savings which are not accessible to their partners. This isn’t necessarily just money to spend in strip clubs and on the horses.  The accounts may be more symbolic than useful although they may also have practical uses. They may be long term investments or instant access savings accounts for day to day spending. They could be used for a variety of reasons:  guilt free spending, risky investments or just to ensure a feeling of independence. The fact that it is men who are more likely to have these accounts  sheds a little light on the differences between how men and women think about money:

“It comes as no surprise that more men have a savings account unknown to partners, and more men make major financial decisions without their partners. Both on a biological and societal level, men perceive such concepts as ‘success’, ‘dominance’, ‘ambition’ and ‘money’ to be bound up together, leading men to view money as the tangible proof of their personal and work success. The more money that is stashed or negotiated, the higher a man deems his self-image and social standing to be.” – Psychologist Donna Dawson

It might not entirely be based on self image however, consider the rise in divorce rates. A secret account may be a less offensive step for a man to take than a prenuptial agreement.  Your partner discovering your secret account may be worse however than both agreeing on a Pre-Nup. Hiding savings (or even worse, debt) is never a good idea however, being open and discussing money must be the best policy.

So if your partner turns out to have a secret savings account should you be worried? Perhaps not but you should necessarily be excited either, only 7% of people with a secret account said that they were saving money to spend on a present for their partner.