Andrew Vine: Why the saving habit is a safety net for society

Proportionately, it’s a hefty cut too – 0.5 per cent, bringing the rate down to a measly one per cent, meaning what has been squirrelled away bit by bit over the past 30 years earns next to nothing.

And if I groaned inwardly, because it’s far from being the first rate cut I’ve had, how must those retired people on a fixed income and at least partially reliant on their savings be feeling on getting the same letter?

For many, there can’t be
many more notches on their
belt to tighten in order to stay solvent.

There will be some unsettling stories behind that lost half-of-one-per-cent, of bills that become a serious concern, or people who have worked hard
all their lives having to go without.

For them, nest eggs aren’t just failing to deliver the benefits hoped and planned for over so many decades, but are shrinking in value because the interest they earn lags so far behind the rate at which prices rise.

The spectre of poverty is frightening at any age, but for the elderly it becomes terrifying.

I don’t blame the building society. It’s a prudent and well-run Yorkshire institution that has the welfare of its business to consider, and is doing the best it can in a difficult financial environment.

The last eight years, since the financial crash of 2008, have been the grimmest for savers I can remember because of low interest rates, even though I have cause to be thankful as a mortgage-payer.

But the slashing of rates to prevent an economic meltdown has had an unforeseen consequence that could spell difficulties in the future that dwarf those of fixed-income households today.

It has changed the attitudes of many towards saving, to such an extent that they simply do not see the point, and this is storing up all sorts of problems.

As rates have been so low for so long, a generation has come to adulthood lacking the ethos and discipline to set something aside on a regular basis.

Returns are so paltry that younger people in particular are just not bothering, and have failed to acquire the savings habit.

And it is a habit, conditioned in successive generations by caution about having something put by, just in case. The old monthly ritual of setting something aside – even if was only a very few pounds – does not hold sway any more.

The last eight years have eroded the habit. For many, as the monthly salary comes in,
out it all goes, and not just because there is too little left over to save.

Just as there are pensioners worrying about the lack of return on savings, so there are those of working age not giving any thought at all to having a safety net.

A survey by the Halifax last week contained the telling statistic that only 37 per cent of 18 to 24-year-olds hold a savings account compared to 73 per cent of the over-55s.

It’s a risky mentality that could end with substantial numbers of people hitting retirement in the coming decades with little money behind them, and a future far grimmer than that faced by today’s older savers.

The trend towards young people living with their parents for much longer than they did only 20 years ago, because they cannot afford to buy until they settle with somebody and two wages are coming in, has also played its part.

If there’s no chance of buying somewhere to live, and mum and dad are picking up the bills and filling the fridge, why save? Everything’s covered, so you might as well blow what’s left of the wages on a few nights out.

The consequences of the saving habit no longer being ingrained in substantial numbers of people are already with us.

They’re apparent in the rise of payday loan companies, whose customers are no longer just those on desperately low incomes, but more apparently affluent people who have no cushion of savings when presented with something as mundane as a domestic emergency such as a broken boiler.

Mine is the last generation to have grown up before everybody had a credit card, where the historic notion of saving before buying something still flourished.

The “have it now, pay later” mentality quickly took root with the introduction of the little plastic oblong in purse or wallet.

That was the start of the decline in the savings habit, but the lack of reward for putting something away has done more to damage it than credit cards ever did.

For their own sake, there are many out there who need to reacquire the habit, and like the rest of us, grit their teeth until interest rates improve.