Understanding small savers: saving behaviour amongst low-to-middle income groups

There is a great deal of political and academic interest in people with very low incomes who do not engage with financial services at all. In addition, the financial services industry expends a lot of its energy chasing the custom of people with higher incomes who may be quite sophisticated users of financial products.

Consequently, people who fall in between these two extremes, particularly those with low-to-middle incomes, are often forgotten. PFRC were commissioned to conduct a two-stage research project on these 'small savers'. The first stage of the research, completed in December 1999, involved extensive secondary analysis of the NOP 'Financial Research Survey'. The overall aim of this stage was to understand patterns of saving and investment among people with low-to-middle incomes.

Overall, the study found that more than half of people with just below average incomes were small savers and a quarter saved regularly. Further, a third of people in this income range had money in investments. Fewer were recent investors, however, and just one in twenty had made an investment in the six months prior to the survey. On the whole savers kept their money in bank or building society savings accounts and only those who had built up large amounts of savings seemed to turn to investments. Saving and investment behaviour among people with just below average incomes appeared mainly to be driven by age. Other interesting findings include evidence of a clear life-cycle effect among younger people; the impact of being Pakistani or Bangladeshi; and the importance of tenure effects.

The second stage of the research followed up this statistical analysis with a qualitative investigation of saving behaviour among people with low-to-middle incomes. Using depth interviews and focus groups, a typology of attitudes, approaches and decision-making about saving among this group was developed. It indicates that the majority of people on low-to-middle incomes do save at some point in their lives; across their lifetimes, some will build up quite substantial amounts of money in savings. Moreover, lasting savings habits seem to develop in childhood, although simply being given access to savings (for instance from parents) does not inculcate a commitment to saving. And there is little evidence that either tax relief or interest rates influence savings habits among people in this income group. Finally, there are distinct patterns of saving that explain why some people have money in savings while others, on similar incomes, do not.

The findings of the research were published in two linked reports entitled Understanding Small Savers: Volumes One and Two.