The Money and Pensions Service has a remit to ‘change people’s lives by helping them make the most of their money’. Their remit is to enhance people’s understanding and knowledge of financial matters; enhance people’s ability to manage their financial affairs; and work with other stakeholders to improve the availability, quality and consistency of debt advice. To fulfil this remit, it is essential for them to understand the differing financial needs of consumers in the UK.
This 2019 insight report updates previous research from 2016, which was undertaken by the Money Advice Service and CACI. This research had five main objectives:
- Understand how consumer needs differ and identify the areas of greatest need;
- Provide a common language across the organisation to be used when designing services;
- Improve the targeting of organisational resources;
- Inform the UK Financial Capability Strategy;
- Facilitate dialogue with financial services institutions and third-sector organisations about understanding and communicating with consumers.
The Money and Pensions Service decided the segmentation should be based upon financial resilience. This was defined in terms of five ‘pillars’ consisting of income, savings, protection, credit and demographics.
Hierarchical cluster analysis was used to determine the segments, using data collected in 2018.
The segmentation comprises three macro-segments, and 15 sub-segments. The macro-segments are explained below.
The least financially resilient type, typified by:
- Low household income;
- High levels of over-indebtedness;
- High levels of benefit dependency;
- Little or no savings buffer;
- Low levels of financial confidence;
- Predominantly live in social housing;
- More likely to have a disability or impairment.
- Many of this group report money is a constant source of anxiety, with many overwhelmed by debt and with circumstances that dictate a very short-term and reactive approach to money.
- Almost three-in-five (59%) live in rented accommodation (social or private), with over a quarter (27%) either not working or unemployed.
- Over a third (36%) have a longstanding physical or mental impairment, disability or illness.
- More than two-in-five (42%) are in receipt of Universal Credit.
- Over a quarter (27%) are over-indebted, with half (49%) struggling to keep up with bills and commitments.
- Over a third (35%) could not pay an unexpected £300 bill if faced with it.
Working-age families on average incomes with significant financial commitments, typified by:
- Mostly working and on low-to-middle incomes;
- Likely to be renting privately or mortgaged;
- More likely to have children;High dependency on credit;
- High over-indebtedness;
- Highly digital and mobile.
- The Squeezed have busy lives with multiple financial, work and family pressures, with a ‘live for today’ attitude and a vulnerability caused by a lack of a savings buffer.
- Over two-in-five (43%) of this group are university graduates (compared to a UK average of 32%), while 59% are in full-time employment.
- They have average incomes, with 19% reporting that they often do not have money left over after paying for food and other regular bills.
- Almost one-in-five of this group (17%) rarely or never save, with 19% having less than £100 in savings and investments.
- Two-thirds (65%) are not engaged in how they would manage financially if they needed to go into long-term residential care.
- Half (49%) do not feel confident about protecting themselves from financial scams.
The most financially resilient segment, with the highest levels of income and savings. Comfortable or affluent households typified by:
- Higher household incomes;
- Likely to own their home or be mortgaged;
- Higher savings buffer;
- More confident managing money;
- Lowest levels of over-indebtedness.
- They are more likely to have good financial foundations through education and family support; and have higher financial resilience through higher incomes, retirement provision and a savings buffer. However, they are not without risk due to their higher spending and borrowing levels.
- Almost three-quarters (73%) are mortgaged or own their home outright (compared to a UK average of 59%).
- Almost a third (30%) of this group are retired.
- Three-quarters (74%) are in a pension scheme, while only 10% are over-indebted.
- However, a third (33%) still struggle to keep up with bills and commitments, while 12% are often overdrawn on their current account.
- This group has the highest proportion (45%) of people who have accessed financial advice or guidance.
Points to consider
Methodological strengths and limitations: There are no methodological details available in this report. However, as it is an update of a previous report it is assumed the same methodology is used.
Relevance:This report is relevant to all stakeholders, academics and policymakers who are interested in segmenting the UK population according to their financial behaviour and capabilities.
Generalisability/transferability: This report (presuming the above assumption is correct) uses a robust methodology. Therefore, these findings can be applied with a degree of confidence universally within the UK.