Savings buffer - makes sense but how to incentivise?

michaels

http://www.bbc.co.uk/news/business-33791140

A debt charity has called for incentives to save to help an estimated seven million UK households who do not have an emergency pot of £1,000.
StepChange argues that saving £1,000 would protect 500,000 households from falling into problem debt.

Loads of debt sob stories start with 'the car broke down' or 'my boiler broke'. Obviously those who have the foresight to have a small savings pot manage, those who don't can easily end up in a spiral of pay day loans and even food banks.

What can be done to incentivise savings but also make sure they are only called on in an emergency and replenished after use? I know friendly societies operate on a similar model but don't seem to have 'market traction'. 'Nudging' people to save via SAYE schemes and govt incentives sounds like it might help but what is to stop savers 'emergencies' being a holiday or big TV?

PasturesNew

The trouble with savings is there's always something ...... it can never be solved really.

You can't make people save.... they could try to 'force' say, people on benefits, to save £2/week into an account that could only be used to spend on XYZ, but then they take out a payday loan to buy the big TV anyway. And, emergencies would occur before they've got that £1k (which would take 10 years).

The overheads would cost more than poor people are putting in.

Thrugelmir

Linking payroll saving schemes to local credit unions would be a start. Does it matter what the money gets spent on? If it stops people running up debt then it's achieved it's aim. As then saving will become a habit.

PasturesNew

Thrugelmir wrote: »

Linking payroll saving schemes to local credit unions would be a start.

People bandy about the words "credit unions", but, for many, they simply don't exist - or there are rules/limits that mean you're excluded from joining.

Edit: I just went to look up the CU where I used to live - website's dead/domain's up for sale. I found other Credit Unions in the area, all of which were 20+ miles away. Not very practical for 'poorer' people.

antrobus

Thrugelmir wrote: »

Linking payroll saving schemes to local credit unions would be a start. ....

Having credit unions where the common bond was based on employment rather than residence would help.

princeofpounds

This is what 'friendly' societies used to do pretty much - act as social insurance. You don't see them around much these days, the welfare system pretty much replaced them.


As Pasturesnew points out, the problem is that a lot of what you will do is just displace the spending.


It's a bit like this ceaseless bleating you hear about food banks - if food is free then if you are poor enough to spend the time it takes, of course you will go pick up the free food. Even if you actually have no problem feeding yourself, it frees up cash to spend on other things. Like cigarettes or like museum entry tickets, depending on how cynical you want to be.

Graham_Devon

One of the issues here though is that society and the economy is geared up to get people to spend and take on debt.

Incentivising saving goes against everything that's been put in place over the last couple of decades to aid continual growth.

vivatifosi

Does this go back to Martin's point about financial education? If you can start now with getting people to understand savings then the rest will follow.

Even if people didn't have savings but had an emergency credit card with a zero balance that they didn't use would be a step in the right direction. 20%-30% paying a boiler back over a year would be way better than the Wonga route being peddled on TV at the moment.

Thrugelmir

Graham_Devon wrote: »

One of the issues here though is that society and the economy is geared up to get people to spend and take on debt.

Incentivising saving goes against everything that's been put in place over the last couple of decades to aid continual growth.

We are talking about very low levels of saving here. Much of the money expended hasn't aided growth at all either. Its just interest paid to service the debt. Those with money lend it and simply get richer as a consequence.

michaels

Someone I know needed to renew their car insurance, as a one off it was 700 fully comp but they couldn't get the cash (credit rating too poor even to borrow) so they had to pay monthly, cheapest then was third party which was 1380 :eek: Yes it is just basic financial education and possibly something about being able to pass on instant gratification.

Mistermeaner

I'm not a fan of helping people who can't help themselves, it just makes them ever more helpless.

The state should not nanny people too much, enough of that going on already