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Actuarial profession and DWP Rules of Thumb workshop 3 rd May 2013

Actuarial profession and DWP Rules of Thumb workshop 3 rd May 2013. Saving among lower income groups: Principles from empirical research Andrea Finney. Background. Levels and reasons for saving. 1 in 4 people on lower incomes do not save at all Where people do save, this is often only:

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Actuarial profession and DWP Rules of Thumb workshop 3 rd May 2013

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  1. Actuarial profession and DWP Rules of Thumb workshop3rd May 2013 Saving among lower income groups: Principles from empirical research Andrea Finney

  2. Background

  3. Levels and reasons for saving • 1 in 4 people on lower incomes do not save at all • Where people do save, this is often only: • Sporadic, in small amounts, informal • Two broad reasons for saving • For specific, short-term/anticipated expense • To provide a financial safety net • Many aspire to save for the longer-term • But immediate priorities prevent this in practice

  4. Barriers to saving (formally) • A lack of affordability • Or having other priorities • An unstable income • Lack of experience and understanding • And complexity of financial products generally • Psychological distance to providers • A mis-match between products and needs • Product structures inappropriate • Existing financial incentives not attractive

  5. Thinking about saving

  6. The meaning of ‘saving’ • Differs depending on prior engagement with saving • Saving-inclined: wide – informal to formal • Non-savers: narrow – formal and routine • Other, more tangible concepts • Saving up • Putting money aside • Saving into an account perceived to be • For the long-term, no particular purpose in mind • Difficult to achieve; or impossible, if not in work

  7. Desirability and perceptions of saving • Widespread view that saving is desirable • A desire to save • A desire to have savings • Norms and perceptions are powerful • Non-savers’ are ‘normal’ • ‘Savers’ are ‘wealthy’, ‘boring’, ‘tight’ • Difficulty identifying credible saving role models • The importance of internal motivations for saving

  8. Encouraging saving

  9. The importance of self-efficacy • Start where people are • Acknowledge the difficulties they face today • But emphasise the potential for tomorrow • Use the language they use • Engender specific, tangible goals • Frame expectations about realistic goals • Help people identify affordable amounts to save • Reinforce with (credible) peer testimony

  10. Messages and messengers • Promoting messages ‘with legs’ “Every little helps” “You want to live for today but you need to live for tomorrow too” “Avoiding going without” in the future “Freedom from worry”

  11. Messages and messengers • Promoting messages ‘with legs’ • Promoting credible ambassadors of saving • Social marketing: ‘edutainment’ • Highlighting the desirable qualities of ‘saver’ • Targeting misperceptions of what is ‘normal

  12. Mechanisms • Trusted providers with local presence • Easy-to-understand products and rewards • Ease, convenience of deposit-making • PostOffice, PayPoint • Lloyds TSB’s ‘Save the Change’ • Make saving ‘default’ • Automated transfers and deductions • Third-party instigation and ‘soft compulsion’ • Earmark savings and put at arm’s reach

  13. Bibliography • Kempson and Finney (2009) Saving in lower-income households: a review of the evidence. HMT • Finney and Davies (2011) Towards a nation of savers: understanding and overcoming challenges to saving on a low income. Provident Financial Gp • Kempson and Collard (2013) Promoting savings among lower-income households. Friends Provident Foundation www.pfrc.bris.ac.uk

  14. Thank you andrea.finney@bristol.ac.uk www.pfrc.bris.ac.uk

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