Which? Calls for a National Savings Strategy

15th August 2014

The new Which? report explores consumer behaviour and attitudes to saving in the UK and identifies that there are approximately 11.5 million people who struggle to save regularly, and a further 2.5 million who don't save but could afford to, who could be encouraged to save more.

The Government recommends that households have at least three months' of essential expenditure to protect against sudden shocks to income or expenditure, yet four in ten (41%) people say they could not last three months without their main source of income. Households without a three-month buffer are significantly more likely to have defaulted on a payment in the last month, or used high-cost credit like payday loans.

We reveal half the population (49%) are unhappy with their level of household savings, and a quarter (24%) have no savings at all. Importantly, low income does not completely rule out saving every month - one in ten (11%) of those who saved every month in the last year were in the lowest income quintile, the same proportion of monthly savers as in the highest income quintile. Interestingly, the current low rates of interest were also not mentioned as a barrier to saving.

Our report reveals three main behaviours that are strongly linked to successful saving:

- Saving regularly each month - this is crucial to building and maintaining a three-month savings buffer.

- Saving for a rainy day – saving a regular amount is more successful than saving towards a specific goal like a holiday or car.

- Keeping savings separate from other money – those with a savings buffer are more likely to have a specific savings product which means it feels like a separate 'pot' and they are less likely to dip into it.

We identify a group, 'Habitual Savers', who display all these traits and over half (55%) have the recommended three months savings buffer. We think the Government should work with the industry and employers to develop a national savings strategy, learning from those who save effectively, to help get the UK saving.

Which? executive director, Richard Lloyd, said:

"With half the population unhappy with their level of savings, and a financial buffer so crucial to the resilience of households and the wider economy, we're calling on the Government to help get the UK saving.

“We've looked at the most successful savers and identified the behaviours that the industry and Government should be encouraging to help those who can afford to save, save more."

The report identifies two groups who could be encouraged to save more:

- Struggling Savers (23% of population, approximately 11.5 million people): Struggle to save regularly and see saving as something they do if their budget allows.

- Non-Savers who could save (5% of population, approximately 2.5 million): This group is different from the other groups of non-savers, because although 84% say they can't afford to save, they also cite other reasons for not saving, for example, they prefer to spend money on things they want now or they don't think saving is worthwhile. This group also includes some who could afford to save - 60% are not feeling the squeeze at all compared to an average of 51%.

We are sharing our findings with the British Bankers' Association who are currently consulting on how to improve the savings culture in the UK.

Notes
1. The research used a mixed methodology. Populus, on behalf of Which?, interviewed a UK nationally representative sample of over 4,000 adults between 18th – 22nd December 2013. Statistical analysis was used to segment households into 10 distinct groups of savers and non-savers. Subsequently, 15 in-depth telephone interviews were conducted with the groups that interested us most.

2. Savings buffer: Our report uses the Money Advice Service and Government definition of a recommended savings buffer, which is having three months' or more of essential expenditure put aside in liquid savings.

3. Three groups of savers by behaviour:

Habitual Savers (14% of population – approximately 7 million people; 22% of savers): These are the most successful savers of all. They are less likely to have specific savings goals and have a strong belief in the importance of saving, making sure they save regularly. Therefore they tend not to see their savings as being earmarked for anything and, when asked, will say that they are saving for 'no particular reason' or because they always have. They also cite the security of savings as a big reason for putting money aside. When they do make a purchase, they tend not to save specifically for it, but rather take some of their reserve and subsequently increase savings to build their pot back up again. Their attitude to saving enables them to maintain the level of their savings, even when they dip into it.

- Struggling Savers (23% of population – approximately 11.5 million people; 31% of savers): This group is largely made up of people who do try to save but struggle to do so regularly and tend to have less saved up than any of the other groups. They are more likely to have some household debt and also tend to have lower levels of savings (e.g. less than £2,000). This group is made up of a mixture of people constrained in their savings by low incomes or high outgoings. They tend to save for specific things but without an actual figure in mind. They are more likely to keep their savings in current accounts or cash than most savers, and less likely to have or to use a savings product. As saving tends to be for something in particular - for example a holiday or a new car - they are less likely to build up a buffer to protect them from unexpected expenses and more likely to take breaks from saving.

- Non-Savers (who could save) (5% of the population – approximately 2.5 million people): This group is different from the other groups of non-savers because, although 84% of them say they can't afford to save, they also cite other reasons for not saving. For example, 77% said they prefer to spend money on things they want now, 23% said they do not think saving is worthwhile, and 17% said they had not thought about saving. So while this group, which makes up just over 5% of the population, is comprised of some people who cannot afford to save, it also contains some who could be encouraged to do so, given that 60% are not currently feeling the squeeze at all. The group is made up of slightly more women than men and although it contains people of all ages, it is dominated by those aged over 45. People in this group have much lower incomes than average, with over a third of them in the lowest income quintile. Nearly half have no savings at all, and 42% have never saved.