Savings for the future: solving the savings puzzle for low income households

1. Context
2. The study
3. Key findings
4. Points to consider

• Context
• The study
• Key findings
• Points to consider
• Full report

Context

About a quarter of UK households have no savings at all. The problem is particularly acute among low-income households, but little is known about the role of informal saving, which includes a range of approaches such as keeping money in jam jars or letting current account balances slowly rise.

The study

The study aimed to:

• Improve understanding of savings behaviour in low-income households
• Understand motivation for saving and especially informal saving in this group
• Assess whether and how informal saving contributes to financial resilience.

24 people from three target groups (single parents, advice users aged 41-80, and 20-30-year-old ‘millennials’) and from across the UK were interviewed. The study produced six cases studies, held two focus groups and undertook a literature review in order to develop a typology of low-income savers.

Key findings

• Typology of low-income savers:
  • Spend-saver: Focuses on careful budgeting and spending rather than savings products in order to deal with unexpected costs
  • Reward-treat saver: Usually motivated by specific short-term goals for themselves or their family
  • Safety-net savers: Aware of the need to save to meet unexpected and usually negative expenses (rather than the focus of the reward-treat saver)
  • Life goal saver: Motivated by larger, higher-value savings goals (such as a car or getting out of debt) and so closer to savings approaches promoted by government
  • “Saving just to save” saver: Motivated by saving as a goal in itself and rewarded by the level of savings achieved, often because of a previous inability to save or from being taught the value of saving
  • Passive saver: Rarer among those on low incomes, generally not thinking much about savings that have come from a windfall, but often aware enough of the value of saving to borrow rather than spending savings.
• Key low-income groups and the typology:
  • Single parents were most likely to be safety-net savers and least likely to be passive savers or non-savers
  • Advice users were most likely to “save just to save” and least likely to be passive or reward-treat savers
  • Millennials were most likely to be spend-savers and least likely to be passive savers.
• Relationship between financial resilience and informal or small-sum saving:
  • “Saving just to save” is often overlooked by policy-makers as a valid savings goal, although having any savings can be a motivator to continue
  • Many low-income people combine “saving just to save” and reward-treat strategies, an approach that might be encouraged in future initiatives
  • Having any savings can help individuals to build financial knowledge and skills and so resilience more generally
  • Financial knowledge and resilience are not absolute safeguards and people can nevertheless be overwhelmed by financial crises.

Points to consider

• Methodological limitations:
  • The study is qualitative and sets out a general typology; there is no claim to being broadly representative.
  • There is little discussion of the relationship between the sample and wider populations. The three identified groups have tended to be prioritised in financial resilience initiatives.
• Relevance:
  • The study is relevant to understandings of how to encourage saving among people with low incomes.
• Generalisability/ transferability:
  • The study is indicative only.

Full report

Savings for the future - full report