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Saving in lower-income households

9 September 2009

Contrary to the common misconception that poorer people cannot save, most people on low incomes do in fact save, albeit sporadically and in small amounts, according to a new study by the Personal Finance Research Centre.

The research, which was carried out by Andrea Finney and Professor Elaine Kempson from the University’s Personal Finance Research Centre, provides an overview of the existing evidence on non-retirement saving among lower-income households.  The findings draw on a review of the research literature and new analysis of survey data and qualitative interviews from the Baseline Survey of Saving for and by Children and the first pilot of the Saving Gateway.  They will be used by the Taskforce to help identify the potential for increasing levels of saving among lower-income groups and improving access to and take up of saving products from regulated providers.

Other findings show that:

· A lack of money is important for explaining why some people on low incomes do not save at all, but is not a sufficient explanation.  Instead, many people appear unable to save because they have other priorities for any disposable income they have.

· Despite the risks associated with saving cash at home or with unregulated providers, people on lower incomes often find saving informally attractive because it provides the opportunity to save small and varying amounts conveniently.  Socio-cultural influences – such as trust and familiarity with particular providers, a tradition of using these among families and communities, and the potential for certain types of alternative saving clubs to fulfil a social function – also play an important role.

· The barriers to saving in bank and building society accounts arise largely from a mis-match between what people on low incomes want or need and the products and services offered. This often reflects misperceptions about services and products, which are reinforced by a lack of experience, and providers’ failure to communicate in ways appropriate to low-income consumers’ needs.

· The Saving Gateway has the potential to overcome many of the physical and psychological barriers to saving formally. With the right incentives people on lower incomes can be encouraged to start saving and even go on to develop a saving habit as a result. However, further intervention is required, particularly if we are to find ways to encourage people to extent their saving horizons and begin saving for longer-term, non-specific purposes.

Speaking about the findings, Andrea Finney said: “The impact the recession is having on people across the UK underlines the importance for people of all backgrounds to have some money put aside. But, it is striking how many people on low incomes do already save. The primary need therefore seems to lie in the industry, policy-makers and researchers finding ways to encourage people to save more routinely and to help them make the step from saving informally to saving with the regulated providers. ”

Saving in lower-income households by Elaine Kempson and Andrea Finney is available to download from the Personal Finance Research Centre.

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