Finance Choices
Britons have inflated opinions about savings
The vast majority of Britons are overrating their savings, a new report finds.
This is because three people in four do no consider the impact inflation will have on their nest eggs when choosing where to invest their money, National Savings and Investments reveals.
Millions of Britons do not seem to think inflation affects them, with one in ten believing it is only a concern for those with a lot invested or higher-rate taxpayers.
"Most people know that £1,000 buys much less today than it would have ten years ago. Yet when it comes to saving for the future, the majority of people seem to be disregarding the impact that future inflation will have on their investments," said Karen Jones, National Savings marketing director.
The government-backed savings and investment provider also identifies a rather more worrying trend.
While low inflation awareness in not a new thing, the National Savings report finds that the number of people taking it into account when choosing a savings account has actually fallen over the last few months.
"This downward trend is something of a worry. Even though we are experiencing a period of relatively low inflation, people who invest their money for more than a few years in an account that doesn?t protect against inflation could see the value of their money diminish as inflation takes its toll," said Ms Jones.
By the RPI measure of inflation, savers currently need their investments to produce returns of at least 2.9 per cent to maintain the same purchasing power.
But more than two savers in three have no idea what the current rate of inflation is, National Savings found.
Those most likely to take account of inflation when making investment choices were the over-65s, but even amongst these silver savers just one in three considers the impact of rising prices.
However, they are still more than three times as likely to think about inflation than the 16 to 24 age group - where just one person in ten is inflation savvy.
This is because three people in four do no consider the impact inflation will have on their nest eggs when choosing where to invest their money, National Savings and Investments reveals.
Millions of Britons do not seem to think inflation affects them, with one in ten believing it is only a concern for those with a lot invested or higher-rate taxpayers.
"Most people know that £1,000 buys much less today than it would have ten years ago. Yet when it comes to saving for the future, the majority of people seem to be disregarding the impact that future inflation will have on their investments," said Karen Jones, National Savings marketing director.
The government-backed savings and investment provider also identifies a rather more worrying trend.
While low inflation awareness in not a new thing, the National Savings report finds that the number of people taking it into account when choosing a savings account has actually fallen over the last few months.
"This downward trend is something of a worry. Even though we are experiencing a period of relatively low inflation, people who invest their money for more than a few years in an account that doesn?t protect against inflation could see the value of their money diminish as inflation takes its toll," said Ms Jones.
By the RPI measure of inflation, savers currently need their investments to produce returns of at least 2.9 per cent to maintain the same purchasing power.
But more than two savers in three have no idea what the current rate of inflation is, National Savings found.
Those most likely to take account of inflation when making investment choices were the over-65s, but even amongst these silver savers just one in three considers the impact of rising prices.
However, they are still more than three times as likely to think about inflation than the 16 to 24 age group - where just one person in ten is inflation savvy.
posted by Bruce Wayne at 6:53 AM
Britons have inflated opinions about savings
3 Comments:
I try to make sure whatever means i am saving that i take into account 1 to 2 % for inflation... the key is up untill this year it was hard to even get 2% out of a basic savings account. Inflation is real and does effect all of us if all you ever gained on yoru money was 1 or 2% you would not really be gaining much just keeping you money up with increase.
I wish I had some...we had quite a lot when we retired but it has gone SO fast between taxes, loans to one of our kids, one trip and paying off debt....now I consider what we have left our EF and until I get our debts paid off, it isn't likely we will be saving more. But yes, if I had savings, I would consider inflation.
Any ideas about what rate of inflation we should assume in our planning?
That can make a big difference. Seems like the general rule of thumb is 3%. That means after about 24 years, things will cost about twice as much. However, if it's only 2%, it'll take 36 years. But if it's 5%, prices double in only about 15 years.
To play safe, I've been using 4% in my planning.
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