Why are Brits so smug about money when we're not saving?

We're a nation that's living hand-to-mouth, but we're convinced that we're doing pretty well. One in five people have no savings, and we put aside an average of just £150 a month. However, two thirds of people say they are good with money.

See also: How your personality affects the way you save

See also: Hard-pressed savers offered help with new market-leading bond

See also: Isa rate 'falls to record low' as allowance increases further

A study, by Santander, found that we're not saving anything like enough. The average Brit puts aside just £150 a month - which has to cover everything from short-term emergencies, to medium-term spending like a new car or boiler, annual spends like holidays and Christmas, and long term savings. This is a tiny fraction of what we ought to be putting aside to secure a comfortable future.

It also found that we're saving badly too. While many people are saving for the medium or long term, 53% of people hold their money in a savings account and 27% in a cash ISA - despite the fact that both are producing miserable returns during a period of unprecedentedly low rates. Meanwhile only 10% of Brits invest in stocks and shares ISAs.

Smug

However, there's a significant proportion of people who are fairly smug about their situation. Almost two thirds say that their friends or family would describe them as being "good with money". Of these, almost three quarters pay all their bills on time, half seek out promotional offers rather than paying full price, 44% keep an eye on their bills to see if they could be getting a better deal and 38% pay off their full credit card balance at the end of each month.

Given that only 44% of people are saving for a bigger safety net, 34% for a holiday, 26% for unexpected bills, 22% for retirement, and 14% for a home - it would seem to indicate that some of this smugness may be a little misplaced.

What's wrong?

The problem comes down to the way our brains work. We see cause and effect only when it's directly in front of us. On a day-to-day basis, we see our spending, bills and current account. When we cut costs and spend within our means, we can immediately see the consequences of our actions, reap the rewards, and feel smug.

What we don't see is what lies ahead. We don't consider the major financial outlay that will come out of the blue, or the shortfall when we come to retire, so we don't feel the consequences of neglecting these areas of our finances until further down the line.

It means we can simultaneously be feeling smug and on top of our finances, and yet be building up a major financial crisis a few months or years down the track.

But what do you think? Are you guilty of this, or are you on top of everything? Let us know in the comments.