Can’t save or won’t save?
“I can’t afford to” is a phrase often used when people are asked why they don’t save; but why do some people save more and others save less, even though they are in similar situations?A report, published by the Building Societies Association (BSA), shows that one of the biggest barriers to saving isn’t how much money you have, but the way you think about it.
The Individual’s Saving Decision reveals that almost a third (30%) of those people who do not save at the moment say absolutely nothing could persuade them to save. Whilst some of these people really will not be able to save, many others can, but have chosen not to.
By thinking about saving in a different way, people can motivate themselves to kick the consumption habit and get into the savings habit. Rather than looking at the immediate sacrifices of saving, people need to think longer-term and consider the peace of mind and flexibility saving will bring.
In the past people have been told that saving is something you should do. But our research shows that simply telling people to save will not be effective. Instead a change in psychology is required so that people want to save.
Interviews with savers showed that saving does not mean that your lifestyle has to change. In fact, when questioned further, the majority of non-savers also acknowledged that they could afford to save and none would miss £30-£50 taken from their account straight after payday.
Commenting on the report, Adrian Coles, Director-General of the BSA said: “This report chooses not to simply accept the instinctive response “I can’t afford to save” and looks deeper into how and why people come to the decision to save or not to save. What is clear is that saving is a very individual decision and whilst some people in one situation view saving as a rewarding priority, others in the same situation see it as little more than a costly sacrifice; for them the act of saving is a cost that outweighs the benefits. “The way many people currently think about saving needs to be challenged. We need a change in psychology. Instead of thinking of what you could spend the money on now, you need to think about how reassuring it would be to cushion against future expenditure, be it planned or unforeseen. Putting aside even a little each month can really make difference.
“The best long-term solution is educating people so that they want to save by making financial capability a compulsory part of the school curriculum and embarking on a public awareness campaign to show the potential hazards of not saving.”
The report makes several policy recommendations to try to encourage people to think about their savings in a different way.
Financial capability should be made a compulsory part of the school curriculum to instil a long-term financial outlook in all children. This should be linked to the Child Trust Fund to develop financial capability at an early and impressionable age.
A public awareness campaign is likely to be required to make adults stop and re-examine their current saving behaviour – similar in nature to the stop smoking campaigns using stark imagery of a harsh future.
THE EASY WAY TO START SAVING
Some tips from the BSA
Take stock of your finances; sit down and consider the level of your savings. What will your life will be like in five years time and how would a savings nest egg help you cope?
What could you give up? Rather than buying a coffee every morning save the money instead; you could have around £450³ in a year’s time
Think about putting part of your next pay rise straight into a savings account – that way you won’t even miss it. You could set up a standing order so the money comes out immediately every payday
Set a goal to save for; imagine the security a lump sum could provide
Pass on the habit; get your kids into saving at an early age, encouraging friends and family to save for them rather than buying birthday and Christmas presents
Don’t be afraid to ask questions; your building society will be able to help if you don’t understand any savings products