Banks, building societies, the government of the day, our parents – there are lots of people telling us we should save money.
So it’s perhaps no surprise that we feel bad if we don’t put money aside for the future.
But does it make economic sense? Many of us would in fact be better off if we ignored the advice to save and instead paid off our debts.
Let’s say a family has a credit card debt of £1,000 and savings of £1,000 in an easy access account.
The interest rate on the credit card is 19%, which means the debt costs £190 a year. But the interest rate on the savings account is a mere 2% gross, so the annual savings interest is just £20 – before tax (at 20%, 40% or 45%, depending on your tax band).
In other words, the family spends more on the debt than it earns on the savings - £170 more to be precise. So, if the family used the money in the savings account to clear the debt, they would be £170 better off a year.
Tax will take a smaller bite from our savings from April 2016, when the Personal Savings Allowance comes into force.
Basic rate taxpayers will then no longer pay tax on the first £1,000 of interest they earn from savings. For higher rate taxpayers, it’s the first £500.
But you should do the sums because you could still save money by not saving money.
The figures are particularly compelling because savings rates are currently so low. The top easy access account pays about 1.65%. Or you can earn about 1.5% in a tax-free cash individual savings account (ISA).
The interest rates on personal loans, credit cards and overdrafts are usually much higher. The typical credit card rate, for example, is about 19%.
In other words, it is more expensive to borrow money than to save. Anyone with savings who also has costly debts should therefore consider using at least part of their savings to help clear their debts.
It makes sense to always pay off the most expensive debts first – and watch out for any penalties.
If you have a personal loan, for example, there could be a penalty of several months’ interest if you pay off the debt before the end of the loan term. It can still make financial sense to clear the debt, but you have to factor the penalty into your calculations.
The cheapest - and biggest - debt is usually the mortgage. You should therefore only pay off, or pay down, the mortgage if you have cleared other, more costly debts. Otherwise, the same calculation applies.
So, if the mortgage interest rate is higher than the savings interest rate, you should consider cutting down the amount you owe on the home loan.