Britons use savings to pay off debt and meet living costs

Posted on November 7th, 2010 | Categories - Savings

Savings deposits are being dipped into by UK savers.

The rising cost of living has forced people to use their savings.

Savings fell by 14% over the last three months as Britons tried to cope with increased living costs and paying off debt, according to the ING Direct Consumer Savings Monitor.

The report shows that savings have fallen by £279 with balances standing at just £1,771, which are the lowest figures since tracking began in January 2009.

The drop is a result of rising prices and static incomes as well as the recent cuts to public spending.

ING Direct CEO, Richard Doe, said: “These figures show us the very difficult financial choices that ordinary people face. On the positive side, Britons are absolutely determined to get their personal finances in order by clearing debt. Yet rainy day savings are falling as people use them to meet the rising cost of living”.

The research showed that almost 40% of people used their savings to pay their household bills, over 30% spent their cash on holiday expenses and 11% used their saved money during the ‘back to school’ season.

People also used their savings to pay off debt and personal loans. A fifth of those polled said they tapped into their cash reserves to pay off unsecured debt.

James Knightley, ING Group senior economist said: “With the cost of living rising faster than incomes, people are having to make tough decisions on their lifestyles relative to their debts and savings. For now they are choosing to pay down debts and continue to spend at the expense of their savings”.

He added: “The government’s tagline that “we are all in it together”, ahead of the Comprehensive Spending Review, clearly focussed households’ minds on the tough times ahead. Despite recent corrective action, households remain heavily indebted. So, given the ominous implications from the austerity measures for household budgets it is possible that debts will continue to be paid down at the expense of saving. However, private sector employment is rising and if it can accelerate further, boosting household income, then it is likely that the recent decline in savings can be reversed”.