Savers look from deposits to debt management

Thursday, 13 August 2009 12:00

Financial services provider Nationwide has revealed that funds which might previously have been placed in savings accounts are being diverted towards debt management efforts by many households.

Some 60 per cent of consumers still say that they think saving is important; however, with low interest rates a common feature of the marketplace, more people are looking to make an overall saving by intensifying their debt management efforts instead.

Nationwide’s head of savings Andy Hutchinson expects this to continue until some parity is reached between consumer debt and the average income a UK employee can expect to earn.

Once this is reached, he says, “there should be opportunities for households to put more money into deposit savings and other financial assets”.

But he adds: “Initially, increased saving is likely to occur mostly in the form of debt reduction.”

His comments follow the suggestion from Nationwide that debt advice and financial guidance in general can help consumers to feel more confident about how they use their money.

The building society claimed that people who receive debt help typically become more aware not only of how best to borrow, but also the most effective ways to save and budget for their future.

And those families who are considering looking for debt advice are not alone, Nationwide noted, as Citizens Advice dealt with 1.76 million queries over the course of 2008.

Shopping over the summer

People could be forgiven for anticipating a summer of low prices on the high streets, after seeing some of the special offers that were around at Christmas.

However, Barclays claims that a season of “business as usual” is more likely in the warm weeks that approach.

The prediction came from the financial services provider following figures from the Office for National Statistics that indicated a turbulent year for retailers across the country.

Families are spending more on essentials such as food, the office revealed, with a 1.2 per cent in growth in takings for edible goods between March and May.

But other outlets saw a slight decline of 0.4 per cent over the same period, with areas such as household goods performing particularly badly as consumers cut their outgoings by 2.5 per cent on products in the category.

Inflation in real terms

Other news which may appear positive is the reduced rate of inflation announced by the Bank of England in its latest measure of the consumer prices index (CPI) on June 16th.

The headline figure of 2.2 per cent marks a return towards the flat rate of two per cent the Bank aims for after numerous monthly reports of inflation above three per cent in recent months.

But many people had expected inflation to come in below two per cent, based on indicators within the economy prior to the publication of the latest calculation.

And for some groups – particularly those over the age of 50 – the rate faced in real terms could be even higher.

The Alliance Trust Research Centre has calculated its own rates of inflation for different age groups, taking into account the proportion of each demographic’s income that goes towards different product types – such as food or energy bills.

While the under-50s see rates similar to the headline figure for CPI inflation, the over-50s could encounter anything up to 3.6 per cent growth in their outgoings, as they are dominated by expenditure on food and fuel where inflation remains above average.

Debt help during the downturn

In spite of the 1.76 million debt-related queries handled by Citizens Advice last year, it seems many people are reluctant to ask for debt advice.

R3, the professional organisation for operatives in the business recovery sector, cites the findings of the DebtTracker survey from YouGov, which was conducted in February.

The research discovered that 63 per cent of people who have missed a payment – whether on a bill, credit card or loan – in the past six months did not consider their situation serious enough to seek debt help.

A similar figure was found by R3 in its own research, where 65 per cent of those in financial difficulty were reluctant to seek debt advice.

Nick O’Reilly, president of R3, agrees with Nationwide’s suggestion that debt advice and other financial guidance can help consumers to deal with money in the future, in practical terms such as budgeting more carefully.

He adds that asking for debt help does not necessarily equate to giving up the use of all credit cards or declaring bankruptcy.

“For anyone to say they do not need financial advice is troubling, but doubly so for those in financial difficulty,” he comments.

“The only way to sort personal debt problems is to seek advice early; it’s as simple as that.”

Read the original article here

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