Savings can protect households if they experience unexpected bills or a loss of income and can  also help people avoid unnecessary use of credit as well as providing a solid base to help them achieve their financial goals.  Saving is high on the agenda for industry and Government, however evidence around how and when UK households build up or run down savings is not always clear.

The Institute for Fiscal Studies’ (IFS) recent report The Evolution of Wealth in Great Britain 2006-08 to 2010-12, shines a spotlight on household wealth in the run up to, and in the aftermath of, the financial crash.

The IFS research raises important challenges around ensuring that people are prepared for income shocks and unexpected life events, highlighting the huge variation in attitudes and approaches to saving across different population groups:

• Just under half of all age-groups (around 47%) had some form of positive saving behaviour in the two years before being surveyed.
• The reasons for savings varies widely: younger people (aged 25-34) are more likely to be saving for a house deposit, those in pre-retirement (aged 55-64) are more likely to be saving for investments, and the oldest cohort (aged 85 and over) simply save because they do not spend all of their income.
• Over a third of people (36%) report not saving because they cannot afford to. Younger age cohorts are significantly more likely to prioritise debt repayment before saving.

Importantly, The IFS Report shows that just over half the adult population are not actively saving.

Recent research of 5,000 people by the Money Advice Service found that:

• Working age people are less likely to save : one quarter (24%)  never or rarely save money, with a further 10% saving only infrequently.
• More than half (57%) of working age adults have savings worth less than one month’s income.
• And only a similar proportion (64%)  can easily find £300 from their current or savings accounts.
• Older people in retirement are more likely to have savings of one month or more of their household income (63%).

Of course, focusing on building up a small savings buffer is not going to be a single all-purpose solution for every household in the UK. Depending on circumstances, some will instead boost their financial resilience by paying off debt, avoiding additional use of credit or protecting against potential financial risks such as a loss of income caused by illness or a death in the family.

To start to plug this savings gap and encourage people to save more, we need to use these insights into saving and financial capability to address the range of barriers faced by different groups of consumers.

Firstly, consumers need to be able to keep track of their money, to know how much is coming in and going out of their accounts – without basic budgeting it is much more difficult to put money aside into savings.

Our research shows that people who save tend to feel more confident and in control of their financial decision-making. Manageable short-term savings goals can be effective in encouraging people to start saving and also give them the belief and confidence that they can save.

Once people have proved this to themselves, and have directly experienced the benefits of saving, they need support and motivation to develop a longer-term plan. Our survey found that the attitudes and motivations of those who had managed to accumulate a larger savings buffer, relative to their income, were different to those of short-term savers whose funds were spent on the specific purpose for which they were intended.

In January, the Money Advice Service will be commencing some awareness raising activity bringing together a range of partners to encourage Britain to get spending under control and start to make savings each month.

This is an important part of the recently launched UK Financial Capability Strategy: a collective 10 year plan to help consumers make the most of their money, plan ahead and avoid financial difficulties. It will be through this type of collaboration with a range of partners including; government, regulators, industry, third sector and other organisations that we can all play a role in driving change.

Nick Watkins is head of Consumer Insight for the Money Advice Service, a not-for profit government organisation. The website offers financial advice including budget planners and savings tips.

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