Nearly two in five (39%) consumers, equivalent to 20 million people, plan to save a higher share of their income after the pandemic than they did before, including 17% who plan to save significantly more according to research by financial mutual Scottish Friendly and the Centre for Economics research.
The business research has also revealed that precautionary saving activity is set to rise in the aftermath of the pandemic, as it has done in previous economic downturns in the UK.
Scottish Friendly says that during all five of the UK’s major recessions since the 1960s, the household saving ratio – defined as the share of disposable income that is not spent on goods and services – increased in comparison to the level recorded during the 12 months leading up to the respective downturns.
Furthermore, the household saving ratio in the UK has remained at an elevated level or even increased further during the early stages of the recovery in previous recessions. As well as studying 50 years’ worth of households saving data, Scottish Friendly and Cebr interviewed 4,000 UK adults as part of their study.
With this year’s recovery, it is younger generations who are the driving force behind the expected increase in saving activity. More than half (55%) of 25-34 years olds and 47% of 18-24-year-olds plan to save a greater proportion of their money after the pandemic.
By comparison, less than a quarter (24%) of respondents aged 55-64 expect to save more than they did before the pandemic, with 39% saying that events of the past 12 months will have no influence on their savings habits.
In addition to a spike in saving activity, there is also evidence that the pandemic has started to impact the way in which people save. Before the pandemic, the most popular destination for individuals’ monthly savings were current accounts and saving accounts.
A third (33%) of all monthly savings were deposited into current accounts but this is expected to fall to 31% after the pandemic. Despite offering low levels of return, popularity of cash ISAs is set to rise marginally from 8% of savings deposits to 9%. Investment in the stock market, which offers savers the potential for above-inflation returns is also set to rise, with the popularity of stocks and shares ISAs increasing slightly from 4% to 5%.
There is also evidence of the growing popularity of less traditional savings vehicles, namely cryptocurrencies. The share of monthly savings placed into crypto is expected to rise from 2.6% before the pandemic to 3.2% after the pandemic – a 21% increase.
Kevin Brown, Savings Specialist at Scottish Friendly said “The pandemic contributed to the UK savings ratio reaching an all-time high of 18% in 2020, but what this study also shows is the longer-term affect it will have on Brits saving habits.”
“More specifically, it points to a dramatic step-change in the behaviours of younger adults in the UK who are set on maintaining a more regular and more substantial savings habit.”
“This bodes extremely well for the financial security and well-being of many households up and down the UK. Not all families have been fortunate to save more over the past year and some will still be struggling, but it’s encouraging to know that lots of young adults are motivated to save and to make financial plans for the future.”
“The pandemic and the subsequent increase in people’s interaction with saving has also influenced the way in which people save. There is evidence that people are thinking more about how to maximise their savings and possibly rely less on cash as it currently offers very little if any reward.”
Long-term habit of the COVID-19 pandemic on saving habits