Since we kicked off our emergency savings research, with the commencement of the sidecar savings trial in 2019, the context for saving has changed for almost everyone. The financial impact of the Covid-19 crisis is still being felt. Many find themselves less financially secure and with depleted resources compared to before the pandemic. And now the UK is suffering a cost-of-living crisis. Income growth has not kept up with costs, such as energy, food and transport, meaning that many UK households are struggling to make ends meet.
The starting point for our emergency savings trials was that people live one financial life, rather than financial behaviours operating in the product silos we tend to think of within the financial services industry. Different financial challenges interact and compete with each other. Rising costs and stagnating wages are of course part of this picture, and the question of what the cost-of-living crisis means for the relevance of efforts to scale workplace emergency savings is an important one.
In this blogpost, we set out our view on why this work remains relevant, appropriate and important.
What and for whom are emergency savings?
The purpose of emergency savings is to provide a buffer of protection against financial shocks, such as such as a car or appliance repair or higher-than-expected bill, or sometimes to smooth uneven or precarious incomes. The goal here is not to lock funds away or necessarily even to grow wealth or assets over time, but the establishing of short-term financial resilience, which, as we and others have previously noted, can often involve regular withdrawals and reducing balances to zero before rebuilding savings again.
At any given point in time, it is always the case that setting money aside for emergencies, or for short- and medium-term goals, won’t be right, or even possible, for everyone. Even in relatively buoyant economic conditions, there will always be expenses and debts to manage, and many experience income volatility too. This is not about saying that everyone can or should be saving more.
But levels of short-term financial resilience in the UK are worryingly low. We know that many people would like to build an accessible savings buffer and feel they could do so, but don’t get around to it. We’ve also seen elsewhere (for example, in the Personal Finance Research Centre’s research on saving in lower-income households) that there is strong evidence to suggest that, with the right tools, people have a greater capacity to save than they think they do. Our research objective is to understand what works in supporting those people to get started with saving. That segment of the UK population – those who could set aside a little for emergencies or other short-term goals – is not static, and certainly it is likely to be smaller in today’s economic context. Because emergency saving won’t be right for everyone at all times, it’s really important to get the design right. For us, there are two important principles underpinning our emergency savings research trials: choice and access.
In both of our live workplace savings research trials, the decision as to whether to save, and how much to save, remains with the employee. The sidecar savings trial of the ‘Jars’ tool requires people to actively sign up to take part. After that, they can cease saving any time.
Within the opt-out or ‘autosave’ trial, employees are defaulted into setting aside an amount every time they are paid, and they receive a series of communications and reminders with information about the saving scheme in their first weeks of employment. Opting out is easy, with employees simply able to email HR to stop participating in the scheme – there are no complicated forms to complete or processes to follow.
In both trials, savings are fully accessible, during and after employment. While building on the success of ‘set-and-forget’ payroll savings, what’s involved here is better thought of as partitioning than deductions. There is no friction built in to accessing the set-aside funds.
These two principles work to mitigate the risk of detriment to the saver in the form of saving ‘too much’. We’ve also worked to understand what language and communications are needed to ensure that employees are making the decisions that fit with their needs and goals, with our findings recently published: Talking about payroll autosave with employees: a practical guide to communicating an opt-out approach to payroll saving (PDF)
Later this month, we’ll be publishing the next paper from the sidecar savings trial, focussing on how people are using and experiencing the Jars savings tool. Some of the patterns we’re seeing suggest people are using the tool to manage expenditure across the full pay period, which could be a powerful strategy for dealing with increases in the cost of living. Understanding the lived experience of using the tools is also vitally important, and we look forward to sharing insights from recent qualitative research with Jars users as part of this same paper.
Individual employers will be best placed to understand what their employees might need by way of financial wellbeing and resilience, and many will look for other ways to provide support. Emergency savings will be much more relevant for some employers than for others, and that picture may well shift over time, including in response to challenges like the current cost-of-living environment. Our focus is on identifying what does and doesn’t work, and on identifying and helping to address perceived and actual barriers to implementation, so that those employers who do want to offer some form of workplace savings have as much information as possible on which to base their plans and decisions. This research is important, and we’re optimistic that the relevance of the findings will hold true whatever the short-term challenges are that people face.
We’d welcome your views on this important topic, as well as suggestions of other areas where research may be needed. Join us online on Wednesday 18 May for our live-streamed Emergency savings summit, where we’ll be sharing insights from our research programmes and hearing the views and ideas of others working to support financial wellbeing.
Michelle Cremin, Head of Development at Nest Insight