As a new survey shows that disposable income is on the rise, Caroline Lindsay looks at the facts and figures and finds out more.
Good news: according to a new report out this week, on average, people in the UK now have 8% of their take home salary left each month, up from 5% since last quarter. And people in Scotland and London are leading the country in terms of disposable income, by quite some margin. Those in these two regions have around £263 left over each month after essentials are paid for.
There is a significant gap between Scotland and London and the third best well off region, Yorkshire and Humberside, where there is an average disposable income of £217. Wales and the North East are lagging behind, with £193 and £182 left over each month, respectively.
The findings come from the latest Disposable Income Index from ISA provider Scottish Friendly, which examines our attitudes towards saving and investing. According to the report, the increase in disposable income has prompted a rise in the levels of saving, with 60% of us now choosing to put money aside each month up 5% since the last index. UK residents are currently putting an average of £287 per month into savings accounts or ISAs, equating to £10bn per month in savings across the UK.
The boost in savings contributions could be linked to a general wariness about the future more than a quarter of people surveyed this month believe that their financial situation will get worse in the next three months.
Interestingly, looking at the next three months, a third don’t have a top financial priority. One in five say their focus is paying off their debts and a further 14% claim their top priority is to avoid getting into debt. Both are good indicators of an improving savings and investment culture in the UK.
Neil Lovatt, product director at Scottish Friendly, says: “The results show a stronger mood of personal responsibility amongst savers in the UK, across all income levels. Clearly this may be underpinned by a general wariness about the immediate future but the fact that people are addressing this by saving more for a rainy day is positive indeed. Debt is a preoccupation for many and it is encouraging to see that repaying and avoiding it is amongst the top priorities for us today.”
So why has there been such a significant rise in disposable income in Scotland? “This is a trend that we have seen across the UK; however, Scotland in particular has seen a significant growth. One reason for this is the growth in employment in the UK over the past quarter. According to the Office for National Statistics, employment in Scotland increased by 16,000 over the quarter to stand at 2,578,000,” Neil continues.
“The Scottish economy is going through something of a renaissance at the moment and is seeing significant growth. Not all areas of the UK have been so fortunate.”
And, he adds, there are other indications of an improving savings and investment culture in the UK: “Certainly the amount that people are now putting aside in stocks and shares funds has been increasing. Net retail sales were £2.9 billion in April, the highest since April 2011. We’ll be keeping an eye on stocks and shares and cash ISA sales in July following the introduction of the new ISA, announced by the Chancellor in his March budget.
“For over a decade in the late nineties, early noughties, the UK operated under a general culture of borrowing and spending. This caught up with us all in 2008 and only now are people starting to recover. We would suggest that people across the UK have reconsidered their approach to their personal finances in wake of the economic crisis and this is starting to filter through as levels of personal debt fall and savings rise.”
So could we have even more of our salary left each month in the next quarter?
“It is impossible to tell for sure,” says Neil, “but all the right economic indicators suggest that we might. Employment levels are on the rise and consumer confidence is returning. Figures now suggest that the Scottish economy could see a 2.4% growth this year and with it, we would expect to see the levels of disposable income increase.
“But while we hope that this trend will continue, there are no guarantees that disposable income will continue to rise indefinitely. So while the sun shines, it would be appropriate for people to ‘make hay’ and save what they can in case disposable income levels fall back again in the future. One important item looming on the horizon is that it looks like interest rates are set to rise. One shouldn’t get too excited about this by thinking it means that Cash ISA rates will improve because what this could mean is that people’s mortgage payments may go up, resulting in less disposable income.”
And, it seems, men are better at saving than women: among those who are regularly saving, women are just slipping behind their male counterparts, putting 10% of their salary away each month, compared to men, who put 11% of their wages into savings each month.