ISA's and Saving Accounts - Can't Save or Won't Save
Personal_Finance / Savings Accounts Apr 09, 2007 - 04:16 PM GMTBy: Submissions
Rachel Le Brocq writes : “I can't afford to” is a phrase often used when people are asked why they don't save; but why do some people save more and others save less, even though they are in similar situations? A report, published today by the Building Societies Association, shows that one of the biggest barriers to saving isn't how much money you have, but the way you think about it.
The Individual's Saving Decision¹ reveals that almost a third (30%) of those people who do not save at the moment say absolutely nothing could persuade them to save. Whilst some of these people really will not be able to save, many others can, but have chosen not to.
By thinking about saving in a different way, people can motivate themselves to kick the consumption habit and get into the savings habit. Rather than looking at the immediate sacrifices of saving, people need to think longer-term and consider the peace of mind and flexibility saving will bring. [See end of release for more tips on saving.]
In the past people have been told that saving is something you should do. But our research shows that simply telling people to save will not be effective. Instead a change in psychology is required so that people want to save.
Interviews with savers showed that saving does not mean that your lifestyle has to change. In fact, when questioned further, the majority of non-savers also acknowledged that they could afford to save and none would miss £30-£50 taken from their account straight after payday.
Commenting on the report, Adrian Coles, Director-General of the BSA said:
“ This report chooses not to simply accept the instinctive response “I can't afford to save” and looks deeper into how and why people come to the decision to save or not to save. What is clear is that saving is a very individual decision and whilst some people in one situation view saving as a rewarding priority, others in the same situation see it as little more than a costly sacrifice; for them the act of saving is a cost that outweighs the benefits.
“The way many people currently think about saving needs to be challenged. We need a change in psychology. Instead of thinking of what you could spend the money on now, you need to think about how reassuring it would be to cushion against future expenditure, be it planned or unforeseen. Putting aside even a little each month can really make difference.
“The best long-term solution is educating people so that they want to save by making financial capability a compulsory part of the school curriculum and embarking on a public awareness campaign to show the potential hazards of not saving.”
The report makes several policy recommendations to try to encourage people to think about their savings in a different way.
o Financial capability should be made a compulsory part of the school curriculum to instil a long-term financial outlook in all children. This should be linked to the Child Trust Fund to develop financial capability at an early and impressionable age.
o A public awareness campaign is likely to be required to make adults stop and re-examine their current saving behaviour – similar in nature to the stop smoking campaigns using stark imagery of a harsh future.
THE EASY WAY TO START SAVING o Take stock of your finances; sit down and consider the level of your savings. What will your life will be like in five years time and how would a savings nest egg help you cope? o What could you give up? Rather than buying a coffee every morning save the money instead; you could have around £450³ in a year's time o Think about putting part of your next pay rise straight into a savings account – that way you won't even miss it. You could set up a standing order so the money comes out immediately every payday o Set a goal to save for; imagine the security a lump sum could provide o Pass on the habit; get your kids into saving at an early age, encouraging friends and family to save for them rather than buying birthday and Christmas presents o Don't be afraid to ask questions; your building society will be able to help if you don't understand any savings products |
The Individual's Saving Decision
Notes
- The Individual's Saving Decision is available from the BSA website here http://www.bsa.org.uk/publications/industrypublications/savings_report.htm
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Research Methodology - The research was carried out by GfK NOP Financial Research. Ten one hour-long in-depth discussions were held with individuals by telephone. Two workshops were also held to generate a discussion about saving and product design. The telephone interviews and workshops were held over two weeks commencing 25 September 2006. Following the results of the interviews and workshops, three questions were submitted to the GfK NOP Random Location Omnibus. 985 people participated in the survey between the 12 and 17 October 2006. Respondents were adults aged 15+ and were from all socioeconomic groups. The answers were weighted to reflect the actual proportions in the UK population.
- This assumes the cost of the coffee is £1.80 and is bought every working day for 48 weeks, saved at 5%
- The Building Societies Association (BSA) represents all 60 building societies in the United Kingdom. Building societies have total assets in excess of £305 billion and hold residential mortgages of over £200 billion, approximately 18% of the total outstanding in the UK. Societies hold over £190 billion of retail deposits, accounting for about 19% of all such deposits in the UK. Building societies also account for over 37% of all cash ISA balances. Building societies employ almost 50,000 full and part-time staff and operate through around 2,150 branches.
- Photographs of Adrian Coles are available from the BSA press office, or from the Association's website at www.bsa.org.uk
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