Britons throw Money Away By Saving When In Debt
Millions of Britons are proving to be financially inept by saving whilst still being in debt through personal loans, credit cards and overdrafts, according to new research.
This ineptitude leads many to pour money away as the rate of interest borrowers are charged on their debts is far greater than any interest earned through savings.
Research from Axa Avenue, part of the Axa group, revealed that for every £1 accrued in savings, the UK’s ‘saver-debtors’ are charged £5 in interest on personal loans, overdrafts and credit cards.
However, this has not deterred almost 12.2m UK residents investing £2bn a yearinsavings despite owing £57bn in unsecured personal loans.
This makes little financial sense when you consider that this section of the population – representing one in four adults in the UK- earns £1.21bn a year on interest from the £23.97bn they have in savings accounts, ISA’s, investment bonds and endowments. The financial madness is that the interest earned barely makes a dent in the interest charged on their unsecured debt of £57.65bn, which lumbers these ‘saver-debtors’ with £6.51bn in interest payments.
Whilst saving is commendable and financially prudent, one’s personal financial situation has to be sound in order to reap the benefits. Ploughing money into savings rather than putting it towards credit card and other unsecured debt may mean losing money faster than making it. In the short to medium term it may be wiser to put all spare cash to clearing debt before saving it, as then you will enjoy the interest on those savings.
Sarah Allott-Davey, Axa Avenue’s resident financial adviser, said: “ It is great that such a proportion of the population, more than 50 per cent, are saving on a regular basis. The message that we must all take responsibility for our financial security is certainly getting through. My concern, however, is that some people are saving indiscriminately.”
The research revealed that 37 per cent of those who save while in debt do so because they feel they have to in order to feel more secure in the short-term. Upbringing has it’s part to play as 25 per cent said they save no matter what because they were brought up with a saving ethic.
Ms Allott-Davey added: “ Those people who are saving money over and above clearing debts are paying unnecessarily high charges instead of redirecting savings for the short-term to be debt-free.
“ Our attitudes to debt and saving seem to be at odds with one another; on the one hand we feel compelled to save as it makes us feel more secure, yet we are comfortable with increasing levels of unsecured debt because it is regarded as ‘the norm’.”
Ally Milton
17/5/06
