Page last updated at 08:35 GMT, Wednesday, 8 July 2009 09:35 UK

UK goes from footloose to frugal

By Tilly Hawkins
BBC Money Programme

Piggy bank (pic: Eyewire)
Piggy banks are back in vogue again

After a decade of easy credit and runaway debt, saving is firmly back in fashion.

Just 12 months ago, we were saving less in Britain than at any time over the last five decades.

That's changing. Now more of us are cutting back on what we spend and putting our money away for a rainy day.

"The savings ratio is moving back up, it's now up to about 4 to 5% and I think that we're going to see it move up over the next two to three years," says Graham Turner, economist and author.

At a time when interest rates along with trust for financial institutions are at an all-time low, risk is high and there's no guarantee of return, deciding where to put your cash is more difficult than ever.

According to Justin Urquhart Stewart of Seven Investment Management, "We've had the entire population getting drunk on credit, then mugged by feral bankers and ignorant politicians - so people are absolutely bemused as to what they should be doing."

The savings ratio surged from a negative number at the start of 2008 to almost 5% by the end of the year.

Now one in 10 people are saying they intend to save more in the coming 12 months - and three million people who have never saved before say they will start putting money aside.

Youthful savers

According to Dax Harkins of savings organisation NS&I, interesting trends have emerged among all age groups of savers, but it is the youngest age group that has provided the biggest surprise.

"The big surprise from our perspective was when we looked at the 25 to 34-year-olds," he says. "We generally look at these people as footloose and fancy-free, but we've seen these as the best savers of the last quarter."

Justin Urquhart Stewart
Justin Urquhart Stewart believes in spreading investments around

Mr Harkins believes the recession has come as a big shock to this age group. Consequently, they are changing their habits to give themselves a financial cushion to accommodate for their reservations about employment and the future.

However, this is not the only age group where savings habits are on the move.

There has been an increase in savings among 35 to 54-year-olds. But for the older age group, the picture is more complicated.

Mr Harkins adds that "55 to 64-year-olds have a slightly darker picture. All of the saving indicators have dropped for this age group.

"I think the main reason here could be a lot of these people may be reliant on income coming from investments.

"And we've seen this across all asset classes, the amount of income that their investment would be generating, so it would make it harder for them to save."

Punts and pitfalls

However people choose to save, there are some clear indicators from the professionals about what to look out for. The experts believe there is no substitute for saving regularly and putting a proportion of earnings away each and every month.

Mr Urquhart Stewart recommends spreading investments over a range of assets, be they property, commodities, stocks and shares and cash.

"By all means, have a punt, but a punt is not investing," he says.

"Investing in its proper sense is having a broad range of asset classes, and that can be everything from shares to fixed-interest bonds and gilts to things like commodities and property, so your investment can stand on probably 10 legs and not just two or three."

At the same time, all are agreed on being aware of the risks and not expecting golden returns.

Given that the financial landscape is so unbelievably complicated for the average saver today, a clear message is to rediscover some of the virtues that used to be fashionable, but have gone out of fashion in recent years.

According to financial journalist and author Gillian Tett, we can move forward by looking back to a more prudent age.

"Don't load yourself up with debt, don't start chasing after every new financial fad," she says.

"And remember that if something seems too good to be true, it almost certainly is."

The latest Money Programme, Supersave Me, is broadcast on Wednesday 8 July at 2200 BST on BBC 2.

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