Scotsman money: study reveals rainy day funds

Despite cost-of-living pressures easing, as inflation falls, many Scots are still more concerned about their immediate finances than putting money away for the future, according to new research.

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A report from mutual life and investments organisation Scottish Friendly and the Centre for Economics and Business Research has revealed that 36 per cent of Scots questioned said they can’t plan beyond a “rainy day fund buffer” until next year.

The Family Finance Tracker report shows Scottish households are still focused on their immediate finances, and almost a fifth reported finding it more difficult to balance their financial priorities now than they did ten years ago.

The study, which included a survey of 2,600 UK consumers, revealed that 37 per cent of Scottish respondents ranked their immediate savings goals – such as putting money away for a rainy day, saving to pay everyday bills, or to fund a holiday – as their top priorities.

Meanwhile, near-future savings goals, including paying for home improvements, were put on the backburner, with only 23 per cent of respondents citing it as their priority.

Just under a third of respondents ranked long-term financial goals – which include retiring early, paying off mortgages early, or leaving an inheritance for the family – as their main priority.

For Scottish households which are planning for the long-term, cash ISAs (at 34 per cent) were the preferred vehicle, over current accounts (19 per cent), investment ISAs (also 19 per cent) and stocks and shares (16 per cent).

Kevin Brown, savings specialist at Scottish Friendly, says: “The results of our first Family Finance Tracker make for very interesting reading. Household spending power has finally reached what it was pre-pandemic. However, it still falls short of where it was immediately prior to the cost-of-living crisis.

“Growth in real earnings has supported improvements in household spending and saving power. However, this advance follows on from a long period of contraction, and so will take time to fully spread through the economy.”

Kevin explains that spending power across the UK in the third quarter of 2023 stood 6.8 per cent lower than where it would have been if it had continued growing at its pre-pandemic and pre-cost-of-living contraction.

He said that the knock-on effect is a higher proportion of Scottish households are still focusing their attention on immediate financial goals. Saving for future goals is either being put on the backburner, or being prepared for with vehicles such as cash ISAs. Kevin believes this is most likely due to households being more risk-averse and feeling that they may need to access their money quickly should another financial shock emerge.

“The hope is that the whole UK economy gets back to growth sooner rather than later and that permeates through to our pockets quickly,” he says. “That will ease pressure and help households to be able to consider and adopt a more balanced approach to their immediate and future financial planning.”

The worrying trend of people focusing on short-term financial goals, often to the detriment of long-term savings – including pensions – is also reflected in new data analysis by the Financial Conduct Authority.

Its analysis of the latest data from firms in the retirement income market, published earlier this month – covering April 2022 to March this year – found that the total number of pension plans accessed for the first time in 2022/23 increased by 4.8 per cent to 739,535, compared to 2021/22 (at 705,666).

Meanwhile, sales of annuities decreased from 68,514 in 2021/22 to 59,163 in 2022/23, a reduction of 13.6 per cent.