Published: Wednesday, 10th February, 2010 5:00pm

Latest savings index reveals some surprises

Money Times with Jill Kerby and Postbank

"There's no way I can afford to save €283 a month," myriad callers told Newstalk radio's morning show last Wednesday after it ran a report about the latest Postbank Savings Index take on the average level of savings.

The next morning Newstalk asked yours truly to provide a profile of the sort of people that are saving, and I pointed out that the €283 is the average: this means that half the respondents to the Milward Brown Lansdowne survey at the end of December, early January, are saving up to that amount and the other half in excess of that amount.

On which side of the average you fall depends on your age and the amount of debt you are carrying, but overall, 40% of those surveyed reported that they had no debt, and it is this proportion of respondents who clearly are the ones who account for the bulk of the higher amount of savings.

For example, 50% of 18- to 24-year-olds have no borrowing; a quarter of 25-34 are debt-free; 27% of 35- to 49-year-olds have no borrowings, 42% of those aged 50-64 and 70% of those age 65 and over.

Interestingly, the people who are in the greatest debt, the 25- to 34-year-olds and the 35- to 49-year-olds are also the ones who are reporting that they intend to spend less in 2010 (54% and 60% respectively) and will decrease their borrowings (30% and 37%) the most. The amount the 25- to 34-year-olds (the age group with the largest first time mortgage take-up in recent years) are also among the highest savers at €356 per month, compared to €270 for 35- to 49-year-olds and €277 a month among the 50- to 64-year-olds. Pensioners save an average, for their age cohort, of €258 per month.

This survey also found that while 76% of the respondents are saving regularly, that figure is down about four per cent fewer than the previous quarter and that average amount of €283 is also down, from €305 a month in Q3 of 2009 and from €344 a month during the same period of 2008. Nevertheless it is estimated that the amount being saved now represents about 11% of disposable income.

Also reflecting the poor economic situation is that 45% of respondents - this percentage is rising from previous survey periods - said they expect they will have to dip into their savings this year. The average for those reducing their debt 25% (but seen from the above breakdown, is much higher among the 25-49 year-old groups) and only six per cent will increase their debt. Fully half of all respondents said they expect to also cut their spending this year and pensioners are least likely to do so at just 13%.

The purpose that c33% of people give for this level of savings is mainly to ensure that a rainy day or emergency fund is in place to meet unexpected expenses, or falls in income. One small but welcome ray of hope for travel operators is that all age groups except the 25 to 34-year-olds (16% of all respondents, the highest percentage recorded in 15 months) said they were saving for a holiday this year.

Meanwhile just four percent on average said they are saving in order to buy a car and only six percent were saving toward the purchase of a house.

The Postbank survey does not include the total amount of personal savings in the economy, but estimates as high as €180 billion have been suggested. Some economists describe this savings rate as a form of hoarding that is damaging the economy.

They're wrong of course. High savings are a typical reaction to recessions that occur as a result of a serious banking crisis that in turn has been caused by excess credit and liquidity which is suddenly withdrawn, as it has been in highly indebted Western economies like ours. It's also a natural reaction when a country is caught in a deflationary vortex (as is the United States and the UK) and people see asset prices falling; better, they reckon, to wait until prices hit bottom before they make their purchase.

What will stop the vicious circle isn't consumers willingly buying at the higher price - that clearly is not in their interest - but in the return of confidence in the banking sector and the general economy, something we have clearly not yet achieved.

The danger for savers, is that the government, which is increasing the c€77 billion national debt by millions every day - you can watch the figure tick up here: financedublin.com/debtclock.php will decide to raid our rainy day fund by sharply raising the DIRT tax from its current level of 25%.

Think they won't? DIRT was just 20% at the beginning of 2009.

(MoneyTimes readers can buy Jill's latest TAB Guide to Money Pensions and Tax 2010 this month by ordering copies here: jillkerby.ie at a special price of €10.)