Three reasons why you don't save enough

Want to save more but don’t?

Then you’re among the 81% of people who wish they saved more, and there are three reasons you’re not putting away enough money.

A report by the Association of British Insurers (ABI), Time to act: tackling our savings problem and building our future, shows the chronic lack of long-term saving in the UK. Just 46% of Britons are making enough provision for their retirement, but we are racking up more debt than ever.

Debts mount up as savings decline

Personal debt in Britain has reached £1.4 trillion, with a sixth of the borrowing unsecured. According to an Aviva Family Finances report the average household has £9,134 of unsecured debt, and this is set to increase as the nation fails to curb its spending habits.

The Office of Budget Responsibility expects total household debt to increase from the current rate of 160% of disposable income to 175% in 2015.

The level of spending is at odds with the majority of Britons’ desire to save. Some 81% of people want to save more, and young people in particular are very keen, with 91% of people aged 18 to 24 and 86% of 19- to 29-year-olds saying they want to save for the longer term.

Although the most widely used excuse for not saving is ‘I can’t afford to’ – the ABI consumer study showed 67% of people said they do not save because they have no spare cash – the real problem underpinning the nation’s lack of saving is that we don’t want to make day-to-day sacrifices in order to do so.

Why we don't save: present bias

The reason for our reluctance to cut back now to save for the future is what is known by cognitive scientists as ‘present bias’. Quite simply it means we have a bias towards spending our money now on shoes or going to the pub rather than saving for retirement, even if we know we should be saving. It is harder to engage with the long term than it is the short term.

The ABI said that not saving was not about affordability, but about priorities. If Britons move away from a present bias and prioritise saving over spending then they will be able to afford to save.

‘It would appear that this is partly a question of people’s spending priorities – in other words, people on a very modest income may indeed struggle to make ends meet and have no money to provide for the future,’ it said.

‘People higher up the income scale may feel they have no spare money, but that may also be because they have chosen to spend their disposable income elsewhere, rather than on saving for retirement. Ultimately, saving requires sacrificing consumption. People saying that they want to save more does not necessarily mean they want to consume less.’

However, Adam Walton, executive director at accountants Ernst & Young, said that while the savings gap was a concern, the ‘real issue’ was the squeezed middle.