New report by Toynbee Hall looks at the informal savings habits of low income households

22 Mar 2017

Informal savings techniques help low income households to be financially resilient, says anti-poverty charity Toynbee Hall.

  • The report finds that low income households employ various informal financial savings techniques that help them to be more financially resilient, particularly with budgeting and preparing for unforeseen expenses
  • In this report Toynbee Hall has created a brand new typology of low income savers, calls for the development of new partnerships between debt advice agencies, financial service providers and FinTech start-ups, and the design of a brand new financial support programme
  • This research helps to dispel the myth that low income households do not have savings methods or personal techniques for financial resilience, but find that these methods are often overpowered by other external pressures like low wages or the rising cost of living.

A new report published today by the Financial Health Exchange, within Toynbee Hall, supported by J.P. Morgan, finds that low income households employ various informal financial savings techniques that help them to be more financially resilient.

The report also finds evidence for a variety of personal motivations that help low income households to put away small amounts of money, including for rewards like family treats and holidays. Also for less obvious reasons such as having pride in being able to have a savings fund at all, particularly for people who have not always been able to save.

Participants in the study fell broadly into three groups: millennials, advice services users, and single parents. Millennials tended to do their money saving through careful shopping, prioritising essential and non-essential expenses.

The advice users participants, the majority of whom are between 61-70, tended to view having savings as its own goal, or as a way of avoiding debt and unforeseen costs that risk pushing people into debt.

Single parents participants, who were between the ages of 21-50, tended to the factor savings in around their families and children. Often because of the expense of having children this group were the most likely to struggle in saving, while other parents said their motivation to save money was primarily because of their children.

The report creates a new typology of low income savers showing the variety of different motives and methods people in this group have for putting money aside for the future. These have implications for a variety of organisations and services providing support for low income households and their financial resilience, including government, financial services providers, and providers of financial education and coaching.

The six types highlighted in the report are:

  • The Spend-Saver: Saving through careful spending
  • The reward-treat saver: Short term savers who hold money back to spend on a treat.
  • Safety net saver: Short-medium term savers who are saving to avoid unexpected expenses
  • Life goal saver: Savers, medium to long term, whose goal is a stress-free pension age, or big purchases like a house or car.
  • ‘Saving just to save’ saver: Savers who are simply rewarded and proud to be able to save, typically those who have previously found it difficult to save money.
  • Passive saver: Those people – rare among low income households – who have savings but are not actively taking steps to save money. This can often be where an income more than meets the needs of an individual’s expenditure, or after a windfall like a lottery win.

The report calls for a series of brand new initiatives and services designed around the ‘responsive habitual saver’, defined as someone who can start regularly putting money away after essential expenses are paid and accounted for.

This term takes into consideration the fact that there might be periods in an individual’s life where saving isn’t always the best thing to do: if a person cannot afford other essentials, such as food or a warm home, or if it is better to pay down debts and reduce loan fees and charges rather than making savings.

The report also features an outline plan for a brand new financial support programme, bringing together a wide range of different organisations including debt advice charities, financial service providers and FinTech start-ups, based around people’s specific savings motives and needs.

The new programme will:

  • Determine which type of saver an individual is
  • Devise a co-created plan with the individual to budget and assess how they can make savings, through careful spending or putting money aside
  • Techniques of monitoring spending in order to help that individual become a ‘responsive habitual saver’, preparing for unexpected expenses
  • Develop an evaluation method throughout the duration of the programme to establish whether people become long term savers afterwards.

The report also calls on a range of alternative financial service providers, such as payday lenders, to work with licensed savings product providers to help turn consumer’s debt repayment habits into savings habits, by offering the opportunity to continue paying the fixed amount of servicing debt into a savings account after that debt has been paid off.

Carl Packman, Toynbee Hall’s Research and Good Practice Manager and the author of the report, says

“Informal savings techniques do not show up on official statistics, and very often go hidden. Many low income households don’t even recognise their methods as ‘savings’ per se, more like money they are just not spending or putting aside for a rainy day.”

“When we spoke to people about their methods, we found that making informal savings made people think about how far they could make their money go, even if they were struggling. It also allowed them to prepare for unforeseen events and expenses.

“While informal savings can go a long way many low income households face significant financial hardship, pushing their resilience to the limits. That’s why it’s so important to build a support system that understands their financial pressures and offers solutions that meet their needs.”

Hang Ho, Head of Philanthropy for Europe, Middle-East and Africa at J.P. Morgan, said:

“We are passionate about equipping members of society to better understand their finances and how to budget to ultimately increase their assets and resilience. Today’s report gives valuable insight into people from low income households’ motivation and behaviours to strengthen financial resilience and, in turn, exposing the gap in understanding of some people.

“Our aim is to help people acquire the necessary knowledge, skills and tools to increase their economic stability. We hope today’s report can spur behavioural change in household saving, building financial resilience for many more in the UK.”

Jake Eliot, Senior Policy Manager at the Money Advice Service, said:

“This report clearly shows the importance of even small amounts of cash savings to people on low incomes. Our own research has shown that millions across the UK lack a sufficient savings buffer to protect them from financial shocks – a total of 16.8 million working-age adults have less than £100 in savings accounts. We also know that successful saving is all about finding the right approach for you.

“Toynbee Hall’s report shows the variety of savings goals and behaviours that exist across the income spectrum. This research highlights the need to open up a variety of options to allow people to save, particularly for those on low incomes, in ways that work for them.”

Sian Williams, Director of the Financial Health Exchange at Toynbee Hall, says:

We are very happy to be publishing this research at such an important time for savings policy, particularly with the introduction of the Help to Save scheme in 2018.

“Very little previous research studies the motivations behind informal or small sum savings, and yet it is an absolutely vital part of the way many low income households stay financially resilient.

“However this report also shows the challenges these households face in managing their finances, sometimes under very difficult circumstances. That’s why it’s been so important for us to provide details of what kind of support system needs to be created in order to help people save money in a way that meets their personal needs.”

Graham Fisher, Chief Executive of Toynbee Hall, said:

“We know that having savings, however small can make a significant impact on people’s financial resilience, and reduce the risk of a spiral of unmanageable debt and vulnerability to using high cost credit when the unforeseen happens. We also know that many people are really struggling to cope with static incomes and rapidly rising living costs which for many makes savings a massive challenge.

“This timely report helps us understand more about people’s challenges and importantly sets out ideas for how the financial system can work better to facilitate savings and improve the nation’s financial resilience”.

Savings for the Future – Full report

Savings for the Future – Summary