Tuesday 3rd July, 2007 

With all these floods and this soggy summer, hands up those who have been saving for a rainy day and avoiding debt. According to recent figures issued by Office of National Statistics (ONS) very few of us have been doing so. The ONS figures indicate that that the savings ratio is at a 50 year low, currently standing at only 2.1%. The savings ratio a measure of how much we save from our take home pay. A ratio of 2.1% means that for every £50 we take home in our wage packet, we only save £1.

The ONS attributes the fall in savings ratio to five factors: increased tax burden on individuals; rising interest rates causing higher debt repayments; a rise in household spending; low wage increases and reduced employer contributions to pensions.

These figures illustrate that we do not consider saving as a priority. So why is this? I believe two elements, property and the economy, are influencing how we feel about our financial situation.

The value of property has dramatically increased over the last 10 years. This gives us the feeling of wealth: we look at our home and think that if everything goes pear-shaped, we can always rely on our bricks and mortar and the equity therein. The only way you can access that equity without falling further into debt is to either trade down and buy a smaller house or sell up and rent. This wealth self-delusion has misled us into thinking that there is no need to save since our property will bail us out should it start raining.

The strength of the economy has also downgraded the importance of savings. With continuing growth at around 3% per year and low unemployment, we think that our jobs are safe so we spend. Compare this to the late seventies/early eighties when unemployment was around 10% and your average Joe saved 5 times as much as we do now. Then, inflation was running out of control and the need to save for a rainy day was very real.

So if our heads are dry, it's not raining. Wrong, with personal debt levels at their highest in 10 years; a tidal wave of insolvencies and bankruptcies; four interest rate raises and another one on the horizon; and the likelihood of a house price crash I think we should be breaking out the Sou'westers and wellingtons for a downpour. You do not have to be an economist to realise that current levels of indebtedness and overspending are unsustainable and that house prices cannot keep increasing. So, those of you who think that the rains will never fall, keep on spending. And the rest of us? Follow Granny's advice - start saving for a rainy day and you will survive the storm.