review

Becoming a nation of savers

Evidence type: Review i

Context
The study
Key findings
Recommendations

Context

Nearly 22 million adults in Great Britain feel they are not saving enough. Among these, 75% are not confident that they will be able to increase their savings within a year. Earlier research by StepChange Debt Charity has suggested that 500,000 people could be removed from having problem debt if they had cash savings of at least £1,000. Problem debt has a high social cost, estimated at £8.3bn. The policy challenge is how to improve financial resilience and ‘rainy day’ savings, and reduce the impact problem debt has on families and society as a whole.

The study

The study draws upon an evidence review and new analysis of the Wealth and Assets Survey (WAS), and was commissioned to identify which types of UK households are not saving. The analysis highlighted groupings of households which share similarities based on multiple socio-economic characteristics, identifying 12 new groups. Behavioural barriers to savings are also explored, using four attitudinal questions from WAS concerned with savings and related financial behaviours.

The study aims to identify, with more precision, the types of household that are least likely to have accessible cash savings of at least £1,000 and the behavioural factors that influence these households not to save. The study includes a range of case studies which illustrate different methods to incentivise the desired savings behaviour.

Key findings

29.6% of UK families (7.17 million households) do not have £1,000 saved, and are at higher risk of entering problem debt and associated problems. A YouGov survey (commissioned by StepChange Debt Charity, July 2015) also shows 21.8 million adults in Great Britain (44% of the population) do not feel confident they are saving enough for a ‘rainy day’.
The WAS data shows a strong correlation between having low levels of accessible cash savings, and having a low income, living in rented housing and having a young family. These factors have been suggested previously as being important determinants of saving propensity. The analysis confirms these as being the three main socio-economic variables to predict saving behaviour. It also identifies twelve groups based on demographic criteria and shows which are least likely to have cash savings of at least £1000, and the three least-likely groups are: ‘low-moderate income earners’; ‘very low-income mortgage holders’; and 'middle-to-high income parents’.
Behavioural factors can also inhibit savings and the WAS data shows between 8% and 13% of households across the 12 demographic groups tend not to prioritise the long-term advantages saving provides. However, the analysis also shows that although the groups with less saved tend to display these behavioural characteristics slightly more than those groups with savings, the difference between these groups is not very large. This suggests that products and incentives can be broadly targeted, rather than being focused purely on specific low income audiences.

Recommendations

All families in the UK should be encouraged to have at least £1,000 in accessible cash saving, to improve financial resilience and reduce the economic and social impact of problem debt.
Government should adapt the pensions auto-enrolment system to help encourage this savings target. Case studies suggest rewards such as matching or prize funds could help make this particularly appealing to the target groups.
Banks should develop savings accounts more tailored to audiences with low savings. These would allow small and/or irregular deposits, including at the time of account opening, yet still offer access to headline savings rates.
Prize-linked savings accounts have been shown to appeal to lower-income consumers and could be developed to encourage cash savings.
The welfare system, including Universal Credit and tax credits should have a savings element built into them. This would help people outside of the proposed auto-enrolment system, e.g. the long-term unemployed, who are especially vulnerable to the impact of an unexpected bill.
Government should expand current trials of credit union accounts for primary pupils, and the associated financial education that comes with these, into secondary schools to encourage savings behaviour throughout a child’s formative years.
Enhance the current proposal to design a standard financial statement, so that it can support people receiving debt advice and enable them to save at the same time as addressing their other financial difficulties.