Video: Building a buffer - helping more consumers to save


Nick Watkins: So I’m going to talk about the work that we've done in the U.K., thinking about, based on our research, how we can help consumers to save. We've identified, as Elaine’s work, that active saving and not using credit for everyday essentials are two of the key things, highly correlated with financial well-being, and therefore they’re two of the areas that we've called out as things that we want to focus on.

So we really want to understand how do we help U.K. consumers to save. And we've already established something today that there is huge commonality between the U.K. and Canada, New Zealand, Australia, and therefore I'm sure the stat is here is very similar to the stats that you'll see from the other countries.

So we recon 22% of U.K. adults have got less than 100 pounds in savings anywhere. If you look at actually money in a savings account, the figure is even smaller. And yet, at the same time, we know that around seven in ten households will experience an unexpected bill in the year. And if we look at what those bills costs, an awful lot of them are around 250, 300, 400, 500 pounds. And what we know is that if people don’t have that money, what happens? They will tend to borrow it, and then if something else goes wrong, the whole thing starts to unravel and you have real problems.

One of the debt advice charities in the U.K. recons that if all households had a thousand pounds, you would reduce the number of consumers in the U.K. presenting full crisis debt advice by half a million. So it's clearly really important that we can help people to build that savings buffer. And really, again, as we've seen earlier today, this is not just about income. I'm not pretending for one minute that it isn’t harder for the people on lower incomes, and some of those on the lowest incomes, it's very hard indeed.

But I think one of the important takeaways, and I know this point has already been made, is that it isn’t just if you earn a lot of money, you have a saving buffer; if you don’t, you don’t. And we found exactly the same when we looked at using credit for everyday essentials, we found as many with a household income of above $50,000, as those with a household income of less and $17,500 thousand. So it isn’t just about income.

And when we do our analysis of our adult financial capability survey, we find that those people who are saving, it's correlated with these much more around attitude and mindset. So it's about locus of control, it's about being engaged with your money; in other words, being willing to make time for your money and believing that you can make a difference, and it's about having a savings mindset, believing that it's important to save, important to budget, important to keep track.

So what I think I've set out is no surprise to anyone, it builds on a lot of what we've heard already today. What I want to do now is really to focus on: So what do we do about it? We've understood there's a problem. We've seen that it's correlated more with attitude and mindset than income. But what do we actually do about it?

So I'm going to use the Behavioural Insights Team’s model, their EAST Model, it must be something about behavioural economists and four letter acronyms, so you know, BEARs and EASTs, and all these things. But the EAST model I think is really quite a nice way of looking at this. So what it says is: If you want people to change their behaviour — not just their financial behaviour, any behavioural change — you're more likely to be successful if you can make it easy, if you can make it attractive, if you can make it social or if you can make it timely. So in a minute I am going to go on and just work through each of those and talk a little bit about some of the work that we've done and some of the ideas that we're testing.

But before I do, I thought it might be quite just helpful to say some of the things I don’t think work. So one of the things is telling people they should save. I don’t think is really going to have any use at all. You know, you talk to lots and lots of people, and there's only a small minority who will say to you: No, no, you don’t need to save. Those tend to be the people in my experience to be more around the sort of middle and slightly higher income who go: I'll put it on the credit card, why do I need to save?

So most people believe that they should save, and when you talk to them, they'll say: I know I should save, but I can't in this minute because of X, Y, Z. So that doesn’t work. I don’t think it's around access to savings. Products in the U.K., I'm not saying they can't be better or whatever, but I don’t think that's a problem. When we talked -- we did a consultative study with people who were on sort of below average to average income, so have no savings, and we said: Do you know where to save? Yep. Do you know how to open a savings account? Yep, I just haven’t done it. So I don’t think it's a sort of product issue.

And the other thing is, I think it's Daniel Gilbert at Harvard University said: Fear is a terrible motivator. And certainly we did -- one of the test which we did was testing that statistic about seven in ten households will experience an unexpected bill. Do you think you should do something about it? No, it won't happen to me. It happens to the other people, I'm one of the three in ten. So, you know, telling people bad stuff is going to happen, so you need to do things doesn’t work to encourage people who don’t save to save.

I'm not saying some of you who already are savers and establish savings may believe that, but telling people who don’t save: You know, all hell's going to break loose if you don’t have savings. It really doesn’t work particularly well.

So let's come back to the things that might work. So how could we make it easy for people to save? So one of the ideas that we're testing is something called Sidecar savings. And the idea is that you put a savings buffer alongside an auto-enrolled pension. It's an idea that came out of Harvard and we're testing it with Nest in the U.K. and we're hoping to go to employer field trials later this year. We did the qualitative work to test it and they really got a very positive feedback. People say, yeah I like -- we see some people don’t like their employer, don’t trust their employer, but a lot of people go, yes it's lovely. Puts the discipline in place for me, it makes my life easy. So that's one idea to pursue.

How can we make savings attractive? And, again, I think there was a discussion earlier about, you know, the social side of savings. One of the things I've heard quite a lot in focus groups is people go: Hm, I don’t want to save. I heard somebody say to me: Oh, my brother-in-law saves. He's a real saver. He has lots of money. And you know, he's warned the same boring jacket for the last five years. And similarly, when we talk to a group of sort of twenty somethings about savings, what do they hear? Well, savers, that's Billy No-mates. They never go out. I don’t want to be a saver.

So how can you make savings more attractive? Well, one thing is we can focus on gold base savings. So, okay, I might think saving is really boring but may be going on holiday or something like that is attractive. My logic is: okay, at least then you've got your savings. So if that boiler breaks down, if you have a problem, you actually have the money available.

How can we make it social? So we did a challenge, we had an online community. Again, people on some modest incomes who didn’t save, and we said can you save 100 pounds a month? No, can't save 100 pounds a month. All the usual good reasons, you know, rent's expensive, kids this… To cut a long story short, this was only a small trial, 23 people. By the end of it, they all saved. Except one who didn’t save cause her dog was ill and she had the money to pay the vet's bill. And at the end of that, when we went back after six months to see how they were doing, she was saving loads and was a complete advocate for an expected bill happens, but you have to sort of experience it.

Soonline community, people like you, there's some interesting work done by ING in the Netherlands who took ING customers in an homogenous area and sent targetted emails to people who didn’t have savings and said: Hm, people around here save or save more than you. It hasn’t been published yet, I don’t think, but again, they saw a real uplift in savings.

And again, we tested also the idea of a savings buddy or a savings supporter. People don’t want to say, I don’t want to share my details with you, can't see my account, but actually I'll say to you: Karen, would you just -- I'm gonna save up, and I want to save 500 pounds. I'm just going to check in with you monthly to see how I'm doing. And again, that actually landed better than we expected.

And ”T” – “Timely” - this is something again, we're hoping to take into a field trial next year. Logic behind this is, if you take out a loan and you're paying, let's say $200 a month for your loan, you default such that at the end of that loan you can have $100 a month back and $100 defaults into a savings account. So it's easy, you know, that same save-for-tomorrow idea. But again, that went very well in Fincab (phoentic) labs and we're hoping to take it forward with one of the main banks in the U.K. So that's my EAST Model.

But I want to end -- there was a slide at the end that's disappeared. So what you have to imagine is some happy children because the key point is start young. We've got lots of evidence – there’s a longitudinal survey in the U.K. called the British Cohort Survey everybody born in 1970, you can actually find correlations between the cognitive and non-cognitive skills as a child and adult behaviours. We've run a parenting intervention in Wales where we put a financial capability module into an existing parenting intervention, and we really found big results.

So if you give children money, give them regular money, give them responsibility for that money, it really has a very positive effect. Children can pick up the concept of savings by about five or six. So again, that often proves – that’s starting young. So we think parents are really important, over and above the school. And the other really interesting thing was actually the parents, on the parenting intervention, were twice -- twice as many of them were over indebted as the population as a whole, and actually at the end of it, we found the parents had reduced their debts. So you're helping the children and the parents.

And that is the end with 14 seconds left to go. So thank you very much indeed.

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