Having recently worked with the Money Advice Service to identify its role in engaging people on low incomes to ‘nudge’ them towards taking action on their finances, Quids in! magazine has been speaking to readers about their goals. In the forthcoming edition, (and on its website), one reader, Karina, continues:
“I set a goal of £1,000. I found I could get a cheaper rate from my gas and electricity supplier without even switching and £150 cash back. I looked at where I had been charged for electricity for workmen in my house and asked for the whole amount from my housing association... I was shocked when they gave it to me! It turned out I’d over payed water and got a surprise cheque in the post. It was like the flow had turned the other way.” What she saved, she saved.
The UK Financial Capability Strategy focuses on helping people save for a rainy day as one of the most practical ways to help reduce problem debt. It’s highlighted more than many other more prevalent schemes that are perhaps more about reacting to disaster, prioritising prevention. Good aspiration but how do we change the culture of millions who will ask how exactly they’re supposed to save when they can barely make ends meet?
According to research by debt charity StepChange, savings of £1,000 would prevent half a million people from falling into borrowing they cannot afford in an emergency. They say 13 million people would fall behind with bills in less than a month if their income dropped by a quarter.
As Universal Credit rolls out, and with the numbers of council tenants falling into arrears running at 89%, encouraging all claimants to create a war chest of 6-7 weeks’ living costs to see them through the transition to the new system has to be a key objective. But how? How do we get the message out and how do we make the idea seem achievable?
The Money Advice Service (MAS) has plenty of advice for consumers on saving, breaking the subject down into the different goals savers may have, how to compare savings accounts and savings for children. MAS also includes video content with savers giving their top tips too, although its formal and one-size fits all approach may not engage low income households, recommending three month’s housing costs or £3 a day as an appropriate target, for example.
It remains a difficult sell, especially when savings accounts continue to offer little incentive by way of interest. Providing ready access to market comparison websites that help consumers understand the difference and choose between accounts needs to be prioritised wherever they might turn for help. However, as the Money Advice Service points out, it’s best consumers check a number of comparison sites as some have different deals lined up.
Credit Unions make a different offer and used to only consider small, affordable loans to people who save. For people on low incomes, Credit Unions can provide a lifeline in a crisis, and could feature more in strategies to promote financial resilience among low income communities. St Albans District Credit Union have a number of examples of how regular savers have been able to weather setbacks through access to small, affordable loans:
“Originating from Ireland, Margaret found herself having to travel back there for two family funerals within the space of a few weeks. She found this unexpected cost put quite a strain on her finances and approached St Albans District Credit Union for a loan to tide her over this difficult period. As a regular saver, she benefited from a lower rate of interest and is now paying off the loan with an affordable amount each month.”
James Berry from Bristol Credit Union says the relationship with credit unions is the key thing to their members, helping them to make savings a part of their routine transactions: “The interest is actually not that important for low income savers. More important is the ease of saving and the availability of safe accounts where small deposit amounts are okay. With their focus on financial education and accessibility, credit unions can be ideally placed to make it easier to save for low income members – for example by rounding up a loan repayment of £12 to a £15 payment incorporating a £3 saving deposit too.”
A key challenge with savings, as with all elements of financial capability, is promoting the motivation. In 2015, the RSA published Wired for Imprudence, which claimed six psychological barriers prevent people from making the best decisions to manage their finances.
Changing habits around savings, and other elements of financial capability, requires a team effort. It needs frontline projects like credit unions on board, strategic direction from infrastructure organisations and promotional activity from the likes of Quids in! magazine. Access to low income communities means housing providers and local authorities need to also be involved. Individuals themselves need to feel like these goals, which improve their resilience against financial setbacks, can be achieved and that the help and means is well within reach.