‘Saving too much is harming economy’

We’ve become scared of spending, bank chief says

PEOPLE are saving too much and damaging the economy as a result, a bank chief warned yesterday.

Savers burned by the financial and property crash are squirrelling money away rather than spending or investing.

New research from Nationwide UK (Ireland) reveals Irish savers are now more likely to save money as a result of the Government’s recent USC cuts and the Central Bank’s requirement of a 20% deposit for a mortgage.

The proportion of Irish savers who feel Government policy is helping them save has jumped by 25%, according to the savings index which is up from 105 to 131 since the start of the year and is at its highest point since 2011.

Nationwide UK (Ireland) MD Brendan Synnott said: ‘It’s hugely positive from our prospective as a company but for Ireland PLC it’s not really that positive.

‘There’s too much money going on deposit in Ireland and not being spent in the economy – we need to get to a better spend-save balance f or the economy to f unction correctly.’

Financial expert John Lowe, of moneydoctor.ie, said: ‘The savings rate absolutely is too high, and the reason being that people are still too afraid to spend.

‘They’re afraid to invest in anything other than cash because what happened in the crash is still fresh.

‘Also the stock market is extremely jittery at the moment, China is still in a state of flux, in America there’s a possibility of Trump going into the White House, which will cause complete jitters around the world, and there’s Brexit too.

‘People are unsure and there’s an issue about security: too many people with too much money lying around.’

While savers are feeling positive about the impact of Government policy on savings, spirits are not as high in terms of savings behaviour in general.

The research shows positive attitudes towards saving dropped by 7% since the start of the year.

It also revealed two in five people settled their outstanding debts with any additional income they had last month, but nearly one in eight consumers decided to spend any spare cash on non- essential purchases.

But 34% of consumers put extra earnings aside as savings l ast month.

Mr Synnott added: ‘ We have about €90billion on deposit. We could certainly afford for a proper spend-save balance. I’ve no exact economics to back this up, but certainly a far healthier position would be €20bn less on deposit.

The UK’s savings guarantee is £75,000, but was brought down from £85,000 last July, bringing it in line with European Deposit Guarantee Schemes Directive and reflecting the exchange rate.

The Irish State’s savings guarantee is €100,000, and at current exchange rates is worth £78,000.

‘Stock market is extremely jittery’

IT is unquestionable that people being encouraged to save is a positive in any society. For who, after all, would not be thankful for the security afforded by having some money put aside when it comes to any given rainy day scenario?

And so, on the surface, the latest research showing that people are saving at their highest rate since 2011 appears to be good news. And yet, when you look at the specifics, you see only too clearly that those very savers are less happy with their lot than was the case even a few months ago. There is obviously a frustration factor at play.

Savings accounts are currently being boosted due to government policies. The changes in the USC announced in the last Budget have now begun to filter through. Add to that the Central Bank ruling on 20% deposits when it comes to mortgage applications and it is immediately apparent why savings accounts are more numerous and deposits more substantial.

But, in reality, just how positive is this? Are people really feeling the benefits of putting aside a certain amount of money every month, with a view to their future? The problem is that such savings remain trapped, with little chance of release, because great numbers of those hoping to purchase a home are being thwarted in their attempts to do so.

The housing supply simply isn’t there. And not enough houses means stagnant savings, lack of spending power and an economy that lacks stimulation and vibrancy.

We are all aware of our housing crisis. It is affecting the starter homes market and our much-needed social-housing programme. The outgoing Government pledged to sort it out. But it didn’t.

And now, while the various political parties and contenders continue their shadowboxing, we are left languishing in a vacuum awaiting a resolution that will get the country going again, and kickstart desperately needed action in a plethora of areas such as housing.

It is imperative that a progressive plan be put in place. Is it too much to ask, indeed, politicians to set aside their differences and come up with a cross-party national plan to tackle the housing crisis? It is an issue that affects all of us. And we need action now.