WIREDGOV

- Demos report reveals 4 in 5 ‘squeezed middle’ families fail to save enough each month while more prioritise their children’s future needs over their own

- Middle-earners value self-resilience and reject further state benefits

- Think-tank urges policymakers to focus on improving awareness rather than short-term tax cuts to help families ‘wake up and smell the coffee’  

As many as 4 in 5 ‘squeezed middle’ families in Britain are failing to save enough each month, despite being on incomes of over £30k a year.

The findings come from a Demos report revealing the long-term financial pitfalls that face households who identify as self-reliant but are revealed to be irrationally optimistic about their personal finances.

A poll of those earning between £31,000 and £42,300 a year found 78% of households are either failing to meet their savings targets or have no savings aspirations whatsoever.

Older individuals are three times as likely to save regularly. While a third (32%) of over 55s polled said they met their savings targets, only 1 in 10 (10%) of those aged between 35 and 44 said the same.

However, when quizzed further, many squeezed middle families demonstrated high levels of confidence in their families’ long term financial prospects, with 76% of respondents expecting to leave their child a property and/or cash assets of around £50,000.

They also underestimated the future financial burden of health or social care costs, instead prioritising the needs of their children.

More than a third (37%) felt that children’s higher education would be the most significant cost they would face, while 31% said they would prioritise helping their children to get onto the property ladder. Respondents said they expected to spend least on long-term social care (19%) and health costs (5%).

These attitudes disregard recent data showing how social care costs alone could absorb half of adults’ savings in later life.

Earlier this year the Dilnot Commission revealed that individual average care costs would be £50,000, with one in five liable to pay £100,000. Such costs would take a huge chunk out of average household wealth, which the ONS shows to be £235,000, including equity, savings and pensions.

No hand up, no handout

The squeezed middle’s ‘irrational optimism’ was also reflected in their broader attitudes to the economic situation with a majority (60%) believing that the British economy would either improve, or at least remain the same, over the next five years.

Only a quarter (28%) believed that there would be further cuts to public spending and public services in the next Parliament – despite all three major political parties asserting this is likely to be the case.

The Demos report paints a picture of Britain’s squeezed middle as self-reliant and keen to prize their own autonomy.

Only 25% of individuals said they want more services and subsidies for families like theirs, hinting that policymakers should consider offering more than just short-term tax incentives if they are to win over middle-earners.   

‘Wake up and smell the coffee’

The report paints a picture of Britain’s ‘strivers’ who face a long-term struggle for financial security but are not obvious targets of Government attention and support.

Demos urges policymakers to use the squeezed middle's tendency towards autonomy and hard work, by shunning the idea of hand-outs being 'vote winners'. Instead they should consider adopting policies of improved financial risk-awareness and nudge-style actions, such targeted rebates to reward families that make responsible savings decisions.

The report also encourages politicians to recognise that while middle earners don't seem in immediate need, they are storing up trouble by not preparing for their futures and do need help in financially protecting themselves.

Claudia Wood, Deputy Director of Demos and author of the report, said:

“Britain’s middle earners might think they're getting by, but many aren’t saving enough or putting enough into their pension, instead crossing their fingers and hoping something will turn up.

“The Government should be proud that these families are self-resilient, value hard work and would shun traditional handouts. But that doesn't mean they should be overlooked altogether.

“Policymakers should equip middle earners with the right information about the longer term costs they will face, the impact their current poor savings habits will have in later life, and provide incentives for them to save and insure themselves. Middle earners will look after themselves if they are put on the right track."

Vince Smith-Hughes, retirement expert at Prudential UK & Europe, sponsor of the Demos report, said: “The report raises some interesting questions but what is clear is that fostering a savings culture is vital for the long term financial health of individuals and the country as a whole. Making regular savings and pension contributions may not be a priority for young people, but saving as much as possible from as early as possible can bring significant reward later in life.

“Conversely, failing to save for later years means not only having to rely solely on the state pension in retirement, but also missing out on the financial ‘boosts’ that come with pensions, such as tax relief and employer contributions.

“Any improvement to financial education will be a benefit, but taking professional financial advice can also help people to maximise their pension benefits, fully understand the tax issues, and ultimately secure a better retirement income.”

NOTES TO EDITORS

The report, Irrational Optimists, written by Max Wind-Cowie, Claudia Wood and Jonathan Todd, is published by Demos on Monday December 2.

The report was sponsored by Prudential UK & Europe.

For further interview or comment with author please contact Rob Macpherson.

MEDIA CONTACT

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020 7367 6325
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