Raising household saving

• Context
• The study
• Key findings
• Conclusions
• Points to consider
• Full report

Context

There is continuing concern in the UK and internationally that many individuals are making insufficient savings, especially for retirement. This has long been a key issue in UK policy discussions – demonstrated by the continual modifications to the retirement pension system throughout the 21st century (and before).

The study

Based on an analysis of international evidence, this report examines in detail what is known – and what is not known – about the effectiveness of different sorts of interventions designed to raise household savings.

The study looks at the background to saving, seeking to understand why people do or do not save. It looks at the key challenges in evaluating policies to promote savings. In particular, it discusses issues around disaggregating the varying influences on savings behaviour, seeking to identify what is genuine new saving, what is saving that would have taken place anyway and what is simply the transfer of assets from one mode of saving to another.

The report goes on to explore four specific areas that are of potential policy value relating to raising household savings:

1. Financial incentives: Focusing on favoured tax treatment of savings and strategies for matching savings.
2. Information, education and training: Looking in detail at strategies focused on adults, on children and on the workplace. A separate section considers ‘information’.
3. Choice architecture: Based on some of the concepts of behavioural economics, such as ‘nudging’, and looking at the role of default options in savings behaviour, the role of commitment accounts and presentation and framing.
4. Social marketing: An approach of evolving importance that requires the identification of relevant target audiences; understanding the barriers to their behaviour change; designing and testing relevant interventions and then modifying interventions in response to the test results.

Key findings

• Financial incentives:
  • Financial incentives can have a significant effect on the form in which savings are held. It is less clear whether such incentives provide a significant boost to overall savings; most funds going in to incentivised accounts are either transfers of existing savings or funds that have been diverted from other forms of saving.
  • The analysis concludes that financial incentives are unlikely to have strong positive impact on the savings levels of lower income households who expect to receive means-tested benefits in retirement. There is, on the other hand, a lack of evidence to demonstrate the extent to which means-testing provides disincentives to save.
• Information, education and training:
  • Education can be successful in raising people’s financial literacy and improving savings outcomes. There is also some evidence of a ‘spillover’ effect from education of individuals to individuals not directly treated. However, the quality of evidence is low: where financial education is included as part of a wider intervention it is not possible to disentangle the effects of education from other parts of the intervention. Education provided in schools may have long-term effects on financial behaviour, but again the evidence is rather limited.
  • Providing information alone is relatively unsuccessful in changing behaviours. However, taken alongside strategies such as framing (choice architecture), information is an area where more evidence would be helpful.
• Choice architecture:
  • Choice architecture (‘nudging’) is an increasingly explored policy option. Compared with incentivisation (matched savings or tax free accounts), it is a less expensive option.
  • Defaulting people into saving has a strong effect on participation but the effect on the total amount saved is much less clear-cut and may even be undesirable where the default contribution rate is set at a low level.
  • It is not clear that the evidence from retirement savings markets would translate to other aspects of the saving market.
  • On framing, the evidence suggests that there is a danger of unintentional nudges with people possibly responding to cues that should not have a material effect on decisions.
• Social marketing:
  • The concept of social marketing shares features of both education and training and choice architecture, but there is very little evidence so far of the effectiveness of these techniques when applied to personal saving.

Conclusions

Overall the quality of the evidence base is poor. Common limitations of the evidence base are:

• a lack of evidence as to whether the intervention led to genuinely new savings;
• a focus on short-term outcomes, and
• a lack of information as to which individual elements of bundled interventions were effective.

Points to consider

Generalisability / transferability and relevance:

• The report notes that much evidence in the area is US-specific and more work needs to be done in the UK.

Full report

Raising household saving - full report