Tag Archives | savings

Savings ratio UK

  • Definition of Household savings ratio: The percentage of disposable income that is saved. (1)
  • Total savings = Disposable income – Household consumption

UK Saving Ratio

Latest UK household savings ratio: Q2 2014 = 6.7


UK Saving ratio source: National income accounts Q4 ONS

Note: stats were revised upwards in a recent update.

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The Paradox of Saving

Looking at graphs for the saving ratio, I noticed a paradox. When people felt it was a good time to save more, they actually saved less. When people felt it was a bad time to save, they actually save more.

Is it a Good Time to Save?

As part of the GFK consumer confidence survey. They ask a question - In view of the current economic situation – Is it a good time to save?

  • During the period 2004 – May 2007, it is increasingly seen as a good time to save. In May of 2007, the index reaches a peak of +43.
  • However, from 2008, this perception dramatically falls. By Feb 2009, most people are saying this is a bad time to save.
  • During the period 2009-2012 the index is negative with most people saying this is a bad time to save.

But, What Happens to the Actual Savings Ratio?


UK Saving ratio 2004-2012

When people think it is a good time (2004 -08)  to save, the saving ratio is falling.

  • The saving ratio becomes briefly negative in Q1 2008 – which ironically is close to the time when people are saying this is the best time to save.
  • During 2009-12, when people think it is a bad time to save, the saving ratio increases to a much higher rate than the preceding years.

What does this suggest?

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Can we save our way out of the Pension Crisis?

Readers Question. We hear much about the “pensions time bomb”, as people tend to live longer and there is a bulge as “baby boomers” reach retirement age. We also hear much about the need to save for retirement. Saving *money* may mean people have more money in retirement but surely the real problem is to ensure there is more output; money is worth only what it can buy. Is there a risk that money saving will simply simply reduce current output and so reduce the income and incentives needed to ensure we have the investment that will enable us to increase output over time?

It is easy to see how it makes sense for an individual to save for retirement but at the national level it may be counter-productive.

Basically, is there a concern that higher savings for pensions will lead to lower economic output?


Forecast for Dependency Rates

Source: Dept for work and Pensions

Firstly, western economies do face a pension time bomb. Dependency rates are forecast to rise (though the UK is unlikely to be as badly affected as other countries, such as Spain, Italy and Japan.) An ageing population means state pensions will take up a bigger % of GDP. Higher savings would help with the private sector pension deficit and provide more funds for pensions. But, would higher savings lead to lower growth?

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Japan Savings Ratio

Japan has traditionally had a high savings ratio, but, in past decade the savings ratio has fallen to be close to European / US levels.

Graph showing Japan Savings Rates

Japan Saving Rates

Japan Saving Rates

Since 1998, though Japanese saving rates have declined.


The graph is a bit hard to read, but, since 2004, Japanese saving rates have been at 2.5- 3.0%

Currently saving rates in Japan are just under 3%.

Why Has Japanese Saving Rates fallen?

  • Ageing Population. Old people run down savings
  • Increase in retirement age and greater security about state provision for old people
  • Changing attitudes of increased demand for current spending rather than passing it on to next generation.
  • Upgrading of housing which leads to higher imputed rents.
  • Increase in state retirement age to 65
  • Prospects of economic upturn in mid 2000s encouraging higher consumer spending.
  • Stagnant growth in real incomes for some of this period meant even though savings were falling consumer spending was low.

For more detail and explanation see this pdf and pdf2

Forecast for Japanese Saving Rates

Japan saving-ratio

 Predicted Japanese household saving as a percentage of GDP. Source: Hoshi and Ito (2012).

The bad news is that with an ageing population, the saving rate is forecast to decline further.


Consumer spending in Japan

Even though saving rates in Japan have fallen. Consumer spending still accounts for a low % of GDP compared to other countries. In 2005, consumption accounted for 55% of GDP – compared to 66% in UK

During the early 2000s, Japanese consumer spending was struggling to remain positive.

Japan Consumer spending

Japan Consumer spending

Sources of Graphs:


The importance of saving for Japanese government debt