Families Risking All Without Savings

ONE IN four families are taking a big risk by not having any savings to fall back on if the worst should happen to them.

A quarter of parents with young children say they do not have any savings or investments as a nest egg for a rainy day, according to research from Abbey, and a further one in five have less than £1,000 behind them to fall back on.

The rising cost of raising a child is partly to blame, with parents of young children reducing their savings by around £3,300 a year.

It is more likely that new parents will be dipping into their savings to make ends meet, with just over a quarter taking an average of £1,800 out of their total savings this year.

Reza Attar-Zadeh, director of Savings and Investments, said: "It's vital for everyone to have a rainy day fund even more so for parents, who must juggle the need to build up a nest egg for their children's future with the need to provide for the here and now".

Childcare costs have gone up by a painful 6.5 per cent since December 2007, and paying for childcare from six months old to the age of 14 could cost £332 a month, or a total of £53,818 for a typical household with two working parents, according to data from LV=.

Education costs are also rising, with the average household paying £50,240 over their child’s lifetime, according to LV=, which includes an eye-watering £34,300 on a three-year university degree course, including tuition fees, travel, books, and living costs such as rent, bills and household items.

Andrew Hagger of Moneynet.co.uk, said: “With unemployment rising sharply and interest rates at a much lower level than 12 months ago, it's no surprise that parents are saving less. However, putting a little cash aside each month, rather than continually reaching for the plastic is a habit that UK households need to rediscover.

“With the UK on a seemingly endless credit binge for almost 10 years before the credit crunch struck, it had become the norm to rely on plastic and personal loans and it's been hard for people to break out of the ‘buy now, worry about it later' mindset.

“Unless you make a determined effort to start saving, it's one of those things that's easy to put off and never get round to doing anything about.”

However, despite all of the calls on their cash from a growing family, a plucky third of parents plan to start saving more each month from now on.

Mr Attar-Zadeh said: "It is concerning that many families are saving less, as this could leave them facing financial difficulty in the future. It's encouraging to see that some families are looking ahead and planning to save more - we hope this trend will continue".
Mr Hagger suggested that someone looking to build up their savings should consider using a regular saver account.

He added: “While there are some attractive looking rates in excess of 5 per cent for fixed rate savings accounts for four or five year terms, these are of no use to someone looking to start their first nest egg. With many instant access savings accounts paying miserly rates, many at 1 per cent or lower, there's no incentive to put money into this type of account either.

“A regular saver account is the ideal starter account for savers because it gives you the discipline to save something every month for 12 months and sees you rewarded with a worthwhile rate of interest.

“As well as the Abbey regular saver account, you'll also find good deals from some of the building societies - for example Norwich & Peterborough BS pays 5 per cent annual equivalent rate (AER) and Principality Building Society pays 4.5 per cent AER while Barclays pays 4.25 per cent AER.”

The Abbey savings account is paying 4 per cent AER which is fixed for a year, and you can pay in between £20 and £250 a month.

Mr Hagger added: “If you go through life without any savings behind you, as soon there's an unexpected expense such as the washing machine or car breaking down, then you'll have to resort to using your credit card or overdraft and paying interest charges that you can ill afford and which eat further into an already stretched budget.

“The worrying thing is that if people are not able to save, how will they cope when mortgage rates rise from their current low levels and they are forced to find an extra chunk of money each month - it's a potential recipe for disaster and long term could lead to more serious debt problems and in some cases people going bankrupt.”