Oh dear; it looks as if the doom-merchants are creating a self-fulfilling prophesy. A recent survey by American Express Insurance Services quoted in the Daily Telegraph suggests that almost half of us intend cutting back on saving money, if budgets become too tight.

You might wonder why I find this surprising; after all, current spending is much more important than saving for the future, isn’t it?

The problem is that in times of recession, people actually tend to save more of their disposable income, rather than less. It is called the savings ratio and it has always risen during recessionary times (shown in red on the chart).

So what is different this time?
No doubt all recessions are preceded by Jeremiahs (or Cassandras, for those preferring Greek mythology) who talked up the prospects of economic downturn. We certainly have them now. The problem is that the advent of 24 x 7 news, and the need for hectares of blank space to be filled every day, means that every voice is given equal emphasis irrespective of how accurate is its information.

We probably are heading into (may already be in) recession, but there are many who believe that this will not (despite most recent ‘casualties’ Lehman Brothers and American Insurance Group) be as deep or severe as some fear.

With so much negative news, it is hardly surprising that people are more vociferous about their belief that they will have to cut back on saving.

But when answering pollsters questions, people are notoriously able to answer what they think the questioner wants to hear, rather than saying (or even knowing) what they will do in practice. (If in doubt, check predictions of past general elections!)

When push comes to shove, it is likely that most people will actually revert to type and start saving more, in the expectation that they may need to provide a bulwark against future worsening conditions. Doing so will have two effects. Firstly it will reduce consumption, which could act to slow inflation (although it is also deflationary) and is therefore in the long term interests of Britain. Secondly, it will also help them to start building a more sustainable financial future for themselves.

Saving (for) Britain
Increasing savings may appear difficult when things are getting tight, but without doing so, Britain could actually suffer more in the longer term than is necessary.

The problem is that this does not just apply to families considering their investments and planning for retirement; the government also needs to reduce its borrowing (which is the same as saving) and who expects them to do that?

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