Why the UK’s savings ratio is at a record low

Households are saving less now than during the winter of discontent in the 1970s and there is one reason why, according to transparency champion Andy Agathangelou.

The chart below is from the Office of National Statistics’ website. The data set is from the UK Economic Accounts time series and it shows the seasonally adjusted household savings ratio.

I am drawing your attention to it because I believe it to be profoundly important. It shows that the levels of household savings in the UK in recent times to be at their lowest since records began in 1963.

Household savings ratio from 1963 to 2018

A graph showing the changing UK household savings ratio over time


I’m 55, so I can remember how bad things were during the darkest days of the 1970s. I say "darkest" because I have vivid memories of the winter of discontent, when the lights were off in most homes in the evenings because of seemingly never-ending power cuts, with families using candles and torches for light and their gas cookers for warmth. We were enduring a three-day week and the country was on its knees.

So, if households are saving less now than in the darkest times that we can remember, then something pretty serious must be going on. The explanation is multifaceted. Contributory factors include record high levels of consumer debt; higher than even before the global financial crisis and the fall in the accumulation of financial assets, with much less being deposited in financial institutions.

Financial firms have lost consumers' trust

Why is less money being placed in financial institutions? I think that people no longer trust financial institutions the way that they used to.

I have worked in the financial services sector for well over 30 years. During that time, there has been hundreds if not thousands of instances of malpractice, malfeasance and misconduct by individuals in the sector, coupled with the apparent inability of organisations and regulators to prevent it all from happening.

We can think of the global financial crisis in this context, too; it was essentially an extreme example of what can go horribly wrong when financial services “professionals” put the pursuit of short-term profit ahead of everything else.

All that malpractice translates into a continuous drip-drip-drip of bad news stories for financial services and ongoing reputational damage for the sector. We should not, therefore, be surprised if the public have lost trust and confidence in an industry that seems predisposed to behave in a way that leads to persistent reputational self-harm. If the financial services sector was a good friend, perhaps you’d be encouraging them to go and get some professional help.

It was with all this in mind that I set up the Transparency Task Force in 2015, in an attempt to encourage financial services companies to get better at protecting the reputation of the sector by improving market conduct.

My message is simple: for the financial services sector to achieve its full potential it has to be trusted. It seems obvious to me that the sector ought to be doing all that it can to work collaboratively to rebuild the public’s trust and confidence.

Today, we have more than 400 financial services professionals around the world working on a voluntary basis to help drive the reforms that are needed. They are organised and mobilised into special interest groups; each focused on a particular part of the market such as pensions, asset management banking, foreign exchange, and so on.

While some of our members are involved for altruistic reasons, there are many who simply see transparency as a commercial virtue. They recognise that rebuilding trust is good for business, and it most certainly is.

Financial services sector scores poorly

We have only to think about the findings of the Edelman Trust Barometer to fully appreciate just how much a lack of trust is holding back the sector. The Edelman Trust Barometer is an annual global study in its 18th year. In 2018, it covered 28 countries and used input from more than 33,000 respondents.

For the UK, there is some bad news; particularly for those of us in financial services: The UK scores a 24th out of 28 nations in terms of general levels of trust; and the financial services sector scores a very poor 15th out of 15 in terms of general levels of trustworthiness. That’s a huge problem for a sector that has to be trusted to function effectively. I believe it is a systemic problem that ought to be a top priority for the industry’s leaders, regulators, trade bodies and professional associations.

According to Edelman, the top five factors decreasing trust in financial services companies are: no product/cost transparency; confusing products/services; unwanted selling; being unresponsive and difficulty addressing problems.

The financial services industry has a huge commercial interest in driving up the levels of saving and investing; and it needs to face up to the reality that rebuilding trust and confidence is a prerequisite for that to happen. I call on all progressively-minded professionals to work collaboratively to drive the changes that are needed.

Andy Agathangelou is founding chair of the Transparency Task Force.

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