A recent study released by Aldermore, the FTSE-250 bank specialised in providing banking and other financial services to SMEs, indicates that the demographic groups historically least likely to save are now outperforming wealthier peers.

It might be a natural assumption to think that 18 to 24-year-olds are the least likely demographic to be making near-term sacrifices in an effort to safeguard their financial future.

The stereotype of the lowest-income earners also doesn’t equate with careful budgeting and long term financial planning.

Young Save a Larger Percentage of Their Income

However, Aldermore’s report indicates it is exactly those two demographic groups that are, on average, setting aside the highest percentage of their regular income as savings.

18 to 24-year-olds are saving an average of 10% of their gross pre-tax income and not only are the young saving more than older generations, more of them are doing so.

An average of 70% of all UK adults regularly put aside savings with 75% of 18 to 24’s currently doing so.

The figure is even higher for the percentage of regular income the lowest earners are regularly saving. Those earning £10,000 a year or less are saving an average equivalent of 15% of their pre-tax income.

Those earning at least £40,000 a year approximately match the average 10% being saved by youngsters, though less are doing so, and the national average works out at 8% of pre-tax earnings going into savings. The figures would suggest that it is those in the middle that are struggling the most to save.

In many ways, the figures put together by Aldermore make sense.

Younger earners may often still be living at home with parents and be saving up for a deposit on a first property. Lower overheads, if not paying rent or supporting dependents, might mean that while they tend to be on lower salaries they may also find it easier to save a larger percentage of their income.

A full-time employee working at least 35 hours a week and earning the national minimum wage would earn £13,104. This means that the lowest earners in the Aldermore report, on £10,000 or less, are part-time workers and may often have other means of financial support allowing them to save a higher percentage of their income.

However, what the results do demonstrate is that middle-income earners are feeling the squeeze and saving less than they should to secure a comfortable retirement and to have an emergency fund.

Why It’s Important to Save for Retirement

Another recent study, this time by pension provider Scottish Widows suggested that to achieve a retirement income of £23,000 per annum from a combination of state pension provision and a private pension pot, the average Brit needs to save at least 12% of pre-tax earnings. That also means starting to do so from the age of 25, presuming retirement at 65.

On a cheerier note, despite rising inflation and rock bottom interest rates eroding the purchasing power of cash savings, the government’s drive over recent years to promote savings looks to be having an impact with savings rising.

This can be partly, though only slightly, attributed to auto-enrolment, which means most full-time and many part-time workers have 1% of their earnings automatically diverted into a pension. This is matched by a 1% contribution by the employer.

By the 2019/20 tax year this will rise to 4% automatically being taken from earnings and placed into a pension, with a 3% employer contribution.

The government also tops this up by returning income tax paid on pension contributions, taking overall savings to the equivalent of 8% of salary.

This would be expected to lead to an overall rise in savings, though one dark cloud on the horizon is that 50% of under-30s have stated that they will opt-out of auto-enrolment when contributions are raised.

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