One in three turn a blind eye to finances

One in three adults – or around 12.4 million people – refuse to plan their finances at all, and those that do find the time to review them set aside a miserly five minutes a week, according to new research from AXA.

But all is not lost - the results of AXA’s unique financial social experiment have revealed that people need only increase the time they spend reviewing their money issues to 15 minutes a week in order to save thousands of pounds in reduced debt and to increase savings.

With professional advice the experiment found that you can reduce your personal debt by almost a quarter and increase your savings pot by over 40 per cent – and all in the space of 12 months. That amounts to a total saving of up to £6,000.

The AXA research also found that the average UK adult has only saved £1,003 this year while some 61 per cent have either saved nothing at all or have only managed to set aside less than £500.

“AXA Avenue”, which has been exploring issues of financial capability and attitudes to managing finances, involved twenty households, with half receiving financial advice for a year, whilst the other ten households were left to their own devices to act as a control group. The results show that those ten households that received financial advice are collectively £50,000 better off, with massive savings increases and encouraging levels of debt reduction. In contrast, the households left to their own devices got collectively poorer. They frittered away a quarter of their savings and the group saw a three per cent reduction in their net wealth.

Saran Allott-Davey, the independent adviser involved in the experiment, has had a similar impact on the households involved as Super Nanny Jo Frost or Kim and Aggie have had for people with no control of their children or housework, providing individual motivation to help them attend to their problems. The experiment found it was the first couple of meetings that had the greatest impact for our participants – when changes were made and new habits were formed.

With learnings from AXA Avenue, Saran Allott-Davey recommends:

1. You should spend one hour a month planning and reviewing your finances (currently the nation spends just 22 minutes a month doing this)

2. Simplify Me – make a list with only two columns: what goes out; what comes in and make sure the first column totals less than the second

3. Find a buddy – discussing specific financial details with a friend can be tricky but having someone to encourage and motivate you to make changes can make a real difference

4. Consolidate debts – it is very important to understand the total extent of what you owe in outstanding debts – what are you paying in interest? When will the debts be cleared? Consider moving your balances to 0% interest offers or consolidating your debts to reduce your monthly payments.

5. Clear debts before saving – try to clear as much of your debts as possible before making short term savings. The amount you pay in interest on your debts is likely to outweigh any interest you gain on your savings so clear the debts first and then watch your money grow.

6. Think long-term – do not put off thinking about your long term financial future. Get a pension forecast and speak to an adviser if you are concerned your income in retirement is going to leave you short. Make sure you understand the benefits of joining your employer’s pension scheme and take advantage, providing you can meet the monthly payments.

7. Take control – don’t let yourself be overwhelmed by your finances but make the decision to take control; getting the right mindset is half the battle won. Use the sources available to you that will help you better understand and manage your money, from the Internet, Citizens Advice Bureau or an IFA

Whether the participants will be able to keep up the good work – making sure they regularly take time out to think about their finances – has yet to be seen. Slipping back into old habits is the greatest concern for the participants and Saran Allott Davey now the experiment is over. Only 3 out of 10 participants would consider paying for financial advice in the future, with participants concerned that financial advice is too expensive when there are no guaranteed returns – this is after they have managed to collectively improve their financial situations by some £50,000.

Saran Allott-Davey commented: “The single most useful lesson for the majority of the active group was to set up a detailed list of their income and expenditure. In most instances this was extremely revealing and allowed them to gain an understanding of their cash flow problems and financial situation. In many instances this was the catalyst for them to start to improve their situation – for such an easy task, it can be incredibly helpful.

“The discipline of chasing the active group to consider their financial situation was very helpful in setting up some good habits for them for the future and in making some significant changes in the short term. I do have doubts about whether these habits will continue in the medium term.”

Steve Folkard of AXA said: “There is a direct correlation between the amount of time people spend on their finances and how much they save. Our research shows that it’s not until people start to spend around an hour a month on planning and reviewing their money issues that they really see their savings pot grow – people who spend more than an hour saved an average £1,532 last year, compared to just £576 saved by people who don’t review their finances on a monthly basis at all.

“This is supported by the findings of AXA Avenue, which showed that the participants who invested the most time looking at their finances as a whole reaped the greatest rewards. If we all spend just an hour a month reviewing our income and outgoings, or just 15 minutes a week, we’re convinced that the nation’s financial health would improve dramatically.”