People saving less and paying off debt

PEOPLE are now saving less money and more are using extra cash to pay off debts.

The Government’s plan to encourage people to spend their cash is failing as the latest findings show the percentage of people who feel the Government is encouraging them to save rose to 13%, the highest level recorded since January of this year.

In the recent budget the Government hiked the deposit interest retention tax (DIRT) rate in an attempt to encourage more spending.

The percentage of people who are saving regularly fell in November, from 40% to 34%, and there was an increase in those not saving at all from 27% to a record 33%, according to the Nationwide UK (Ireland)/ESRI savings index. When asked about how they might allocate any money over and above their everyday needs, 59% would use it to pay off their debts, an increase from 57% in October, while only 9% would choose to spend the extra cash, down from 11% last month.

Managing director of Nationwide UK (Ireland), Brendan Synnott said: “There are two key trends emerging. The first is that people are understandably reluctant to spend right now given our economic situation. This trend indicates that Government policy is encouraging saving, which is the opposite of its desired effect of encouraging consumer spending.

“The second is that at a personal level, a proportion of people are saving less. This may be caused by an inability to save due to personal circumstances, or a preference to pay down debt.”

Mr Synnott said given both these trends the main challenge in the short term is to achieve a better balance between spending and saving in order to stimulate economic growth.

“The change in the DIRT tax rate announced in the budget may play a role in achieving this balance,” he said.

Consumer expectations for next year are negative, with 40% expecting to be able to save less in six months time than at present.

CEO of the Irish Brokers Association Ciaran Phelan said the figures show that more and more families now no longer have the capacity to save, with the percentage of people not saving rising by 6%.

“What is positive, however, is that almost 60% of respondents would choose to redirect any extra cash to pay down debts.”