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Saving grace

It is a general market reality that the more a customer spends, the better

the deal they get. This applies as much when the customer is buying a crate

of wine rather than a single bottle as when they are investing £10,000

in a pension rather than £20 a month.

Not surprisingly, the financial services industry spends a lot of time

trying to second-guess the needs of so-called high-net-worth customers. Put

simply, they are more profitable than the millions of ordinary people on

average or lower than average incomes.

It was in the interests of these more “valuable” people that the industry

rose up to resist the Government&#39s proposed cap on lifetime tax-free

savings. Their cause has been championed again more recently in the call

for people to be able to save in botha stakeholder and a defined-benefit


Quite right too. As an industry, we should actively champion the interests

of all our customers. The high-net-worth individual has as much right as

the next man or woman to have his or her financial interests defended. But

no more right.

Regrettably, the industry has in recent years done itselffew, if any,

favours by its all too regular campaigning on behalf of the few, rather

than the many. It leaves us open to accusations of perpetuating financial

exclusion. It loses us much public goodwill – branch closures are a case in

point. Above all, it leaves us open to the charge that we are ignoring a

very considerable – and ultimately profitable – part of the market for

finan-cial services.

That is why the work of the University of Bristol&#39s personal finance

research centre on Understanding Small Savers is so important. Claire

Whyley and Elaine Kempson from Bristol are engaged in a detailed study of

who saves what and why among the low-to-middle-income market.

The purpose is to understand what motivates some people to save and what

puts off others. If they can identify these factors, we will be closer to

understanding what needs to be done to create a mass market for financial


The work has concentrated on the who and what and was published this year

as part of Pearl&#39s personal welfare study programme.

One key finding is income levels are not a major influence on an

individual&#39s propensity to save. True, you are slightly more likely to

save, the higher your income level but you are not more likely to save

more. People earning just under £20,000 a year have average lifetime

savings levels only £12 higher than those earning £7,500 to


Nor is it true that people in this part of the market cannot afford to

save. In fact, 56 per cent of them have a savings account of some sort,

mainly in banks and building societies. Earlier research by Pearl has shown

that while money is short, people do have the resources to start saving, if

they so choose.

The trouble is that too many choose not to. While 56 per cent of people

have savings, only 26 per cent of them save regularly.

Another clear conclusion is that people in this part of the market tend to

save, rather than invest. Only 6 per cent of people would say they are

saving for long-term goals. Most small savers are just putting money by for

a rainy day.

Fear or perhaps lack of understanding of the advantages of equity

investment is very evident. Only 8 per cent of people invest money in

Peps/Isas or unit trusts. Interestingly, this figure falls to 5 per cent

for people aged 40 and below but rises to 28 per cent for people in their


Which brings us to another interesting conclusion. Age is by far the

biggest factor in determining whether or not a person is likely to save.

Only 52 per cent of people in their 20s have savings compared with 72 per

cent over 70. Just as important, it is the over-50s who are most likely to

be regular and ongoing savers.

There are two ways of looking at these figures. Perhaps they just reflect

how people accumulate capital as they age. Older people are, therefore,

always more likely to be savers than younger people.

A less complacent conclusion is that today&#39s older people may be simply

the last ofa dying breed of savers. Younger people today do not need to

save – they don&#39t put it off, they put it on (their credit card). If that

is the case, it is hard to see them ever acquiring the savings habit.

Certainly, with overall savings levels in decline, there must be grounds

for concern.

Bristol University is conducting further research to determine why some

people save and others do not. This will be published in the autumn.

Hopefully, it will tell us more about the state of health of our savings

culture and give some clues as to what can be done to encourage more people

to take care of their personal financial welfare.


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