Savings flatline as households tighten belts in face of cost-of-living crisis

Scottish Friendly’s latest Investor Index reveals households are cutting back on saving and investing as they battle to keep up with cost-of-living rises in Q1 2022

New data from financial mutual Scottish Friendly indicates households are having to pare back on saving and investing as they look to cover other areas of essential spending in the first three months of 2022.

The Scottish Friendly Investor Index tracks sales of adult investment ISA policies and the total value of these new policies among its UK-wide customer base, with quarterly activity measured against a base rate of 100.

The value of policies opened rose modestly by 2% quarter-on-quarter but sales of new polices are down 12% in the past three months, and 22% down year-on-year – when household savings rates were soaring during lockdown.

Young people appear worst affected by belt-tightening, with new policy openings among 18-34-year-olds falling 32% over the past 12 months, while 35-49-year-olds saw a 27% decline and 50-64-year-olds down 12%.

However, among the oldest cohort, new policy values have fallen the most during the last year, -12%, suggesting older savers are continuing to save but cutting contribution levels.

Regionally, the East Midlands is worst affected with a 17% decline in new policies since Q4 2021 and a 28% fall over the last 12 months. Wales fares best with just a 5% quarterly drop and a 13% annual decline.

With regard to Junior ISA (JISA) policies new policy openings surged 44% quarter-on-quarter, but values dropped by 31% - indicating parents are putting leftover lockdown funds to work for their kids but saving and investing less overall.

Kevin Brown, savings specialist at Scottish Friendly said:

The sudden drop in new policies and the flatlining of contributions to stocks and shares ISAs is indicative of one thing – tightening budgets. The cost-of-living crisis, while brewing last year, has really exploded in the past three months as increasing costs have been passed onto UK households.

Younger people seem to be bearing the brunt of this with a 15% decline in new policies. This is worrying because younger people are most likely to be facing economic uncertainty at the moment. That being said, the cost-of-living crisis is affecting everyone, as the 12% cut to policy values suggests among older savers.

Savers were able to sock away significant sums during the pandemic, but that trend now seems to have come to a painful end. Through continued rises in JISA contributions however, we can see parents are still making efforts to save and invest for their kids. This is gratifying to see but time will tell if that trend is sustainable as household budgets are squeezed further this year.

Remember that the value of investments can go down as well as up and you could get back less than you paid in.

Tax treatment depends on individual circumstances which can change in the future.