14.5 million British adults (29%) say they had no spare money to put aside as rainy day savings in any of the previous 12 months, according to new research from StepChange Debt Charity. The research also highlights how the difficulties people face in saving are acutely felt by those on low incomes and how short a period of time many people could survive financially in the event of a reduction in income.
The charity is calling on the Government to do more to help low-income households to save by adapting the successful pensions’ auto-enrolment system to include a precautionary savings element – 35% of British adults (17 million) say that this would make them more likely to save. The charity is also calling for improvements to the Help to Save scheme so that it better suits the needs of eligible savers.
The figures do not paint a rosy picture, even for those who can save. In addition to the 14.5 million people who said that they could not save anything each month, a further 9.5 million (19%) said that even when they could save, they had just £50 or less available each month. Previous research by StepChange Debt Charity showed that if every household had £1,000 then 500,000 families could be prevented from falling into problem debt, a figure which today’s research shows is extremely difficult for many to achieve.
The figures highlight the acute difficulties faced by lower-income households, with 45% of people earning less than £20,000 per year saying they were unable to save in any of the previous 12 months.
The perilous financial state of many households is highlighted in the research with 20% of people saying they wouldn’t be able to survive financially for any more than a month if their income was to drop by a quarter. Again those on lower incomes would be particularly badly affected, a third of this group say they would only be able to survive financially for up to a month.
Unfortunately only one in seven people eligible for Help to Save is expected to take advantage of the scheme. There are 3.5 million people eligible – those in receipt of working tax credit or universal credit – yet it is predicted to reach only 500,000 by 2020/21. Ministers must come forward with a plan to tackle anticipated low take-up of Help to Save to ensure the maximum benefit among eligible households who are just about managing.
Mike O’Connor, Chief Executive of StepChange Debt Charity said: “We are seeing household borrowing increasing, reduced social safety nets and rising inflation. Not having a precautionary savings pot means that people are extremely vulnerable to falling into severe problem debt. For too many people stretched budgets leave no room to put even a little aside as they struggle to get by, just about managing month after month. A drop in income or an unexpected expense pushes people over a cliff from managing to crisis.
“Help to Save is a scheme we both campaigned for and welcomed, but a better plan is required to ensure that it meets the needs of those it is designed to support. The pensions’ auto-enrolment system has proved successful at overcoming barriers to pension saving, and building a rainy day savings element into the scheme could help overcome the same barriers to shorter term rainy day savings, helping insulate families from financial shocks and preventing the slide into problem debt”.