Savings balance tilts from deposits to debt management

Figures from Nationwide reveal that more households are looking to put spare funds towards their debt management efforts than to boost their savings at present.

The financial services provider reports that 60 per cent of consumers believe that saving is important.

However, with low interest rates available on many accounts, some households are taking the opportunity to put funds towards debt management instead.

For this reason, Andy Hutchinson, head of savings at Nationwide, predicts that debt is likely to be the area where the most movement is seen in the coming months in terms of lifting households` finances back into the positive.

"Initially, increased saving is likely to occur mostly in the form of debt reduction," he comments.

"Yet, once debt reaches a more sustainable level in relation to incomes, there should be opportunities for households to put more money into deposit savings and other financial assets."

Last month, Nationwide claimed that more financial education is needed in light of the 1.76 million people who sought debt help from Citizens Advice in 2008.

The building society explained that debt advice - and guidance on other areas of personal finance - can help to make households more confident when they borrow, save or budget for their spending in the future by raising their awareness of the issues involved.

Consumer spending in the recession

Figures recently made available by the Office for National Statistics show how the recession is impacting on high street spending as the months progress.

In the period from March to May, more money was spent on food, as retailers of edible goods saw takings increase by 1.2 per cent.

However, less was spent in other stores, with household goods sales down by 2.5 per cent and non-food sales as a whole falling 0.4 per cent.

Financial services provider Barclays notes that the falls seen in some sales figures for May defy expectations following modest rises in previous months.

But this does not mean consumers can expect a summer of reduced prices and competitive discounting as was seen around the Christmas period.

Instead, Barclays forecasts "business as usual" for retailers over the summer months.

The rate of inflation

While high street prices may be doing little to assist household finances, the headline rate of inflation on the consumer prices index (CPI) could appear brighter to many.

After going above the maximum limit of its target range, three per cent, on numerous occasions in recent months, CPI inflation was placed at 2.2 per cent when the Bank of England announced the latest calculations on June 16th.

However, this is still higher than some economists had predicted, while the rate faced by some age groups in real terms is believed to be higher than the headline figures.

The Alliance Trust Research Centre explains that the under-50s face inflation at or below the Bank of England`s headline rate.

But the over-50s, with a greater reliance on food and utilities costs, face real-terms inflation of anywhere up to 3.6 per cent.

When to ask for debt help

For those households which do encounter above-average increases in their essential outgoings in the coming months, the issue of whether to seek expert debt advice could arise.

But statistics released earlier in the year by R3, the Association of Business Recovery Professionals, indicate that many families who struggle with financial problems do not seek debt help at all.

Almost two-thirds (65 per cent) of people who told R3 that they were experiencing financial difficulties still believed that they did not need debt advice.

President of the organisation Nick O`Reilly said: "For anyone to say they do not need financial advice is troubling, but doubly so for those in financial difficulty.

"The only way to sort personal debt problems is to seek advice early; it`s as simple as that."

He added that households should not worry that seeking debt help would result in them being declared bankrupt, or that their credit cards would be taken away from them.

Like Nationwide, he said that advice is about making sure people know how to manage their own finances - even by taking steps as simple as budgeting ahead for expenditures.

Citing figures from the YouGov DebtTracker survey carried out in February, however, R3 noted that fewer than two-fifths (37 per cent) of people who had missed a monthly credit card or loan repayment, or failed to pay a bill on time, had sought debt advice over a six-month period in order to resolve the problem.