Saving and spending amid the pandemic
37% of consumers said they had saved more money than usual during the crisis, while a quarter (25%) said they had saved less.
Among those households who had saved more, respondents estimated they would keep almost two-thirds as savings and spend only about a third in the near future.
The majority of consumers reported having visited non-essential shops less since they reopened than they would under normal circumstances, raising concerns that safety fears will continue to hold back the economic recovery despite consumers being encouraged to spend by government initiatives.
The crisis increased savings for more than a third of households
As described in our July consumer confidence update, confidence in current household finances is stronger than at any point in the past few years. This is surprising, but this could in part result from households holding more savings.
Many households have found that any losses of income have been outweighed by forced reductions in household expenditure, due to the restrictions put in place on travel, retail and recreational activities, and this has led to ‘forced’ savings. As a result, household debt has fallen dramatically and savings have surged. The Bank of England reports that consumers made net credit repayments totalling almost £14 billion between March and May, while households’ deposits increased by a record £25.6 billion in May, following increases of £14.3 billion in March and £16.7 billion in April.
To explore how many and which households have been affected in this way, we asked consumers if changes in spending and/or income as a result of the crisis had caused their household to save more, less or the same amount of money as usual.
Most consumers in our survey experienced some impact on their capacity to save money, with only a third (34%) saving the same amount as usual. A quarter (25%) said they had saved less than usual, but 37% had been able to save more.
This pattern was broadly consistent across the income distribution. With the exception of those on the lowest incomes (less than £14,000 per annum), there were more households in each income group who reported having saved more than usual during the crisis than said they had saved less than usual. However, higher incomes households were more likely to say they had saved more than usual.
There were also differences in how likely a household was to have saved more than usual according to housing tenure and age. 44% of homeowners said they had saved more than usual compared to 25% of renters, while 45% of those aged 65 or over were more likely to have saved more than usual compared to 34% of 30-49 year olds and 33% of 50-64 year olds.
Those groups who were less likely to report having saved more (such as those with lower incomes, renters and those in mid-adulthood) are many of the same groups that were more likely to report financial difficulty even before the coronavirus crisis. This disparity between groups reinforces concerns that the crisis will have a disproportionate financial impact on those who were already worse off.
Many households not planning to spend their savings
A crucial issue for the recovery of the economy will be how quickly consumers spend these savings now that there are increased opportunities to do so. If these savings largely represent deferred spending then the economy will be boosted when the money is spent. But continued uncertainty, driven for example by fear of a second wave of infections and further lockdowns, could mean that consumers want to hold on to higher levels of savings and some of these ‘forced’ savings will become ‘precautionary’ savings.
To investigate this, we asked the 37% of consumers who had saved more what proportion of this they anticipated spending in the near future, for example on a holiday or major purchase, and what proportion they intended to keep as savings.
On average, respondents said they would allocate more to saving (on average: 63%) than to spending (on average: 37%). 18-24 year olds intended to save more on average, at 70% save versus 30% spend. Older adults (over 55) on average allocated more to spending than younger groups. However, they still intended to save the majority (60% save versus 40% spend).
In terms of working status, those in the temporarily unemployed or sick group allocated more on average to spending (58%) compared to workers (35%). Those in the highest income bracket of £69,000 and above were intending to save more on average (70%) compared to the sample as a whole (62%). These findings suggest that those on higher incomes may be more inclined to hold on to their additional savings.
This tendency towards saving the extra cash built up during the lockdown could have implications for the economic recovery as the government aims to stimulate spending through initiatives such as the VAT cut and eating-out vouchers. However, a quarter (25%) of those who had saved more during the pandemic said that they did not yet know what proportion they would allocate to spending versus savings, leaving a clear group of consumers who could be persuaded to increase their spending.
Safety concerns also holding back spending
Key to whether consumers spend savings they have built up during the crisis will be whether they feel safe to resume normal economic activity. To explore this, we explored what people had done since non-essential shops were allowed to open in England from 15th June, with the other nations following suit soon after (and slightly before in Northern Ireland).
We asked consumers if they had visited non-essential shops since they had reopened more or less than they usually would (before lockdown). The large majority (71%) reported having visited non-essential stores less than they usually would. 22% had visited the same amount as usual and only 5% had visited more.
Consumers gave multiple reasons for the reduced number of visits, but the risk of infection was the most commonly given reason. Concern over the risk of infection did not vary significantly between age groups, despite older adults being at more risk of severe illness and death. 61% of 18-29 year olds who had been visiting less gave the risk of infection as a reason, the same proportion as among those over 65.
We also asked consumers if they or anyone in their household had been advised to ‘shield’ during the pandemic due to increased vulnerability to severe illness. Those who had been advised to shield, or live with someone who had, were slightly less likely to have visited non essential shops (77% compared to 70% in the non-shielded population). However, the shielded group was more likely to give infection risk as a reason for this (66% vs. 57% among the non-shielded group). Meanwhile, those not shielding were more likely to be put off by queueing and other restrictions. 46% of those not shielding gave this as a reason compared to 32% in the shielded group.
These findings confirm that it is likely to be some time before many consumers feel confident that it is safe to go about their business as usual and, while some economic activity will switch to online markets, these concerns will act as a drag on the economic recovery.
Published on 23.07.2020
The fieldwork was conducted by Populus on behalf of Which between 17th and 19th July 2020. A nationally representative sample of 2,129 consumers was surveyed.
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