Consumer Attitudes to Saving - UK - February 2005

SUMMARY

"Despite the well-publicised heightened necessity to increase savings levels, the last fewyears have actually seen a decline in the amount of money that people are putting aside. The savingsratio, which measures the proportion of post-tax income that households save rather than spend, hasfallen to historically low levels. Indeed, in the third quarter of 2004, it stood at just 5.6%,significantly below its long-run average level of 8%.

A number of theories have been put forward to explain the recent decline in consumers appetiteto save. These include poor investment returns; the issue of product complexity and the low levelsof financial capability across large sections of the population; government policies on tax andsavings; and the lack of trust that has developed between consumers and long-term savingsproviders."

About the report:

This report offers a vital analysis and assessment of the issues that are currently affecting thelong-term savings market and deterring people from saving. Fusing together the most innovativeconsumer research and latest market analysis, Mintels report offers you all the insight andinspiration you need to design clever, creative and successful marketing strategies in this sector.Use Mintels research to: -- Establish what proportion of the consumer base are currently activelysaving and how much money these people typically put aside each month. -- Gain a deeperunderstanding of the factors that might be deterring people from saving and what factors mightactually persuade people to increase their level of savings.

Intriguing findings include: -- 43% of adults in Britain clearly state that they do not trustfinancial companies. -- More than four in ten consumers would rather invest in property than savingsproducts. -- Respondents to Mintels research in the ABC1 35-54 and ABC1 55+ categories ranked IFEsas their most trusted source of financial advice. Those in the C2DE 55+ group chose their childrenas their seconded most trusted source of financial information

TABLE OF CONTENTS

Introduction

Aims of the report

Abbreviations

Executive Summary

• The savings ratio has declined significantly during the last few years
• A variety of factors have been acting to deter people from saving
• Around 16 million adults are not currently saving anything at all
• Most savers are putting aside relatively small amounts each month
• One in six consumers do not currently save but would like to
• Lack of trust has become a significant issue to consumers
• Many people would rather invest in property than savings products
• Consumers feel the main deterrent to saving is a lack of money
• Higher rates of return and government policy could stimulate saving
• Offering advice in the workplace may help bridge the savings gap

Market Background

• UK households have amassed more than ｣3 billion in financial assets
• Figure 1: Household financial assets, 1994-2004
• Savings and investment products enjoy varying levels of penetration
• Figure 2: Savings and investment product penetration rates, by gender, November 2004
• There are clear signs that people are saving less
• Figure 3: New individual pension business and net sales of unit trusts, 1999-2004
• The savings ratio has declined significantly during the last few years
• Figure 4: UK household savings ratio, 1974-2004
• Estimates point to the emergence of a sizeable savings gap
• Around 12 million people are currently at risk of under-saving

Market Factors

• Poor investment returns have led to a fall in the level of savings
• Figure 5: FTSE 100 Index, monthly averages, 1994-2004
• Mis-selling scandals have seriously eroded consumer confidence
• The savings industry needs to improve its tarnished image
• Product complexity is also believed to be a deterrent to saving
• Sandler plans may ease the issues surrounding product complexity
• The housing market boom has reduced the flow of savings
• Figure 6: Real house price values versus the savings ratio, 1980-2003
• Low nominal interest rates have also created a negative backdrop
• Figure 7: Bank of England base rate, end of quarter, 1972-2005
• The widespread availability of credit has reduced the need to save
• Figure 8: Total household debt, balances outstanding, 1992-2004
• Means-tested benefits are believed to be acting as a disincentive to save
• Tax incentives for saving have tended to be confusing and poorly targeted

Tackling Financial Capability and Encouraging Saving

• Consumer understanding of financial matters is relatively low
• Figure 9: Level of understanding of financial products, by gender, June 2004
• Poor financial literacy skills are putting consumers at a disadvantage
• Low levels of financial capability are deterring people from saving
• A number of initiatives have been launched to promote financial capability
• The FSA has now developed a National Strategy for Financial Capability
• The provision of generic advice is seen as a key priority
• Citizens Advice is likely to be a key strategic partner in this area
• Promoting financial capability needs to begin at school
• Calls have been made for finance to be taught as a separate subject
• Promoting financial capability will be a long-term project

Intermediaries and the Distribution of Savings Products

• The need for intermediaries in the distribution of savings products
• Intermediaries therefore perform a variety of important roles
• The predominance of intermediaries has transformed competition
• Intermediaries also impact on the economics of distribution
• Problems have been identified with commission payments
• Depolarisation has signalled a shift from commission to a menu of fees

The FSA and the Role of Regulation

• The FSA is charged with fulfilling four statutory objectives
• Delivering consumer protection is a key priority for the FSA
• The Treating Customers Fairly initiative aims to rebuild trust
• The FSA has outlined a set of standards for financial promotions
• Guidelines on consumer complaints resolution have also been issued
• The Financial Ombudsman Service can be used to resolve disputes
• Regulators have acted to redress the impact of mis-selling scandals
• The role of regulation may ultimately help to restore confidence

Growing Importance of Work-based Advice

• The workplace has specific advantages as a venue for giving advice
• Work-based advice could help to restore consumer confidence
• Workplace is a priority in the National Strategy for Financial Capability
• Research suggests employees would like to receive advice at work
• Evidence from the US points to the success of workplace marketing
• The incidence of work-based advice is growing in the UK
• Regulatory issues will need to be resolved if the market is to grow

The Consumer - Attitudes Towards Saving and Current Provision

• More than six in ten adults are saving towards something
• Figure 10: Consumers savings habits, November 2004
• Just three in ten consumers are saving through a pension
• Almost half of all adults are saving for non-retirement reasons
• Around three quarters of 35-54-year-olds and ABs are savers
• Figure 11: Consumers savings habits, by gender, age and socio-economic group, November 2004
• Consumers in the ABC1 family group are the most likely to be saving
• Figure 12: Consumers savings habits, by lifestage, Mintels Special Groups and working status,November 2004
• Only half of all Scottish consumers are active savers
• Figure 13: Consumers savings habits, by TV region, newspaper readership and technology usage,November 2004
• More than seven in ten Waitrose customers are active savers
• Figure 14: Consumers savings habits, by commercial TV viewing and supermarket usage, November2004
• Consumers can be grouped according to their savings habits
• Figure 15: Savings habits typologies, by gender, age and socio-economic group, November 2004
• Most savers put aside comparatively small amounts each month
• Figure 16: Average amount saved each month, November 2004
• One in six consumers do not currently save but would like to
• More than a third of AB respondents save over ｣200 each month
• Figure 17: Average amount saved each month, by gender, age and socio-economic group, November2004
• Men and 25-44-year-olds are also more likely to save larger amounts
• A quarter of people at the family lifestage dont save but would like to
• Figure 18: Average amount saved each month, by lifestage, Mintels Special Groups and workingstatus, November 2004
• One in eight broadsheet readers save more than ｣500 per month
• Figure 19: Average amount saved each month, by TV region, newspaper readership and technologyusage, November 2004
• More than four in ten consumers like to know their financial situation
• Figure 20: Consumer attitudes towards finances, by gender, November 2004
• A similar proportion feel they adopt a cautious approach to finances
• Women are more likely to suggest they are always short of money
• Around one in eight adults adopt a happy-go-lucky approach to finances
• Men are more likely to find personal finances interesting
• Attitudes towards finances vary by age and socio-economic group
• Figure 21: Consumer attitudes towards finances, by age and socio-economic group, November 2004
• Consumers can be grouped according to their attitudes towards finances
• Figure 22: Attitudes towards finances typologies, November 2004
• Savings habits differ across the attitudes towards finances typologies
• Figure 23: Savings habits typologies, by attitudes towards finances typologies, November 2004
• The amounts that people save also vary across the typologies
• Figure 24: Average amount saved each month, by attitudes towards finances typologies,November2004

The Consumer - Barriers and Opportunities

• A variety of factors are acting to reduce the desire to save
• Lack of trust has become a significant issue to consumers
• Figure 25: Consumer attitudes towards saving, November 2004
• More than four in ten consumers would rather invest in property
• Tax implications act as a deterrent to just over a fifth of consumers
• Low interest rates discourage one in six consumers from saving
• Few people believe that credit acts as a substitute for saving
• Younger consumers are more likely to trust financial companies
• Figure 26: Do not trust financial companies, by gender, age and socio-economic group, November2004
• More than half of all retired people do not trust financial companies
• Figure 27: Do not trust financial companies, by lifestage, working status and TV region,November 2004
• Half of all men would rather invest in property than savings products
• Figure 28: Would rather invest in property than savings products, by gender, age andsocio-economic group, November 2004
• More than half of full-time workers prefer to invest in bricks and mortar
• Figure 29: Would rather invest in property than savings products, by lifestage, working statusand TV region, November 2004
• Over a quarter of C2DEs are deterred from saving by tax implications
• Figure 30: No point saving as you have to pay tax, by gender, age and socio-economic group,November 2004
• Tax implications are more likely to deter consumers in northern Britain
• Figure 31: No point saving as you have to pay tax, by lifestage, working status and TV region,November 2004
• Young adults are relatively unperturbed by low nominal interest rates
• Figure 32: No point saving as interest rates are too low, by gender, age and socio-economicgroup, November 2004
• Low rates deter more than a fifth of retired people from saving
• Figure 33: No point saving as interest rates are too low, by lifestage, working status and TVregion, November 2004
• 45-54-year-olds are more likely to see credit as an alternative to saving
• Figure 34: No need to save as I can pay for anything I need on credit, by gender, age andsocio-economic group, November 2004
• Londoners are more likely to view credit as a substitute for saving
• Figure 35: No need to save as I can pay for anything I need on credit, by lifestage, workingstatus and TV region, November 2004
• A third of consumers would put any spare money into a savings account
• Figure 36: What consumers would do with any spare money, November 2004
• More than a sixth of respondents would invest in an ISA
• Only a minority of consumers would invest in equity-based products
• Paying off debt or investing in property prove to be popular options
• Women are more likely to go down the deposit-based savings route
• Figure 37: What consumers would do with any spare money, by gender, age and socio-economicgroup, November 2004
• Almost half of 35-44-year-olds would use spare cash to pay off debt
• A fifth of ABs would put their spare money into long-term investments
• Consumers in Scotland tend to choose the deposit-based savings route
• Figure 38: What consumers would do with any spare money, by lifestage, working status and TVregion, November 2004
• One in six broadsheet readers would choose long-term investments
• Figure 39: What consumers would do with any spare money, by technology usage, newspaperreadership and supermarket usage, November 2004

The Consumer - Restoring Trust and Closing the Savings Gap

• A lack of trust is seen as a deterrent to the savings habit
• The vast majority of people trust someone to give them financial advice
• Figure 40: Trust to give impartial advice on financial matters, by gender, November 2004
• Three in ten consumers would trust an IFA to give impartial advice
• Bank branch staff are also deemed to be relatively trustworthy
• More than a fifth of people would trust an accountant and a solicitor
• Citizens Advice Bureaux are also trusted by over a fifth of consumers
• Family and friends are often trusted to give sound financial advice
• Perceived levels of trust vary by age and socio-economic group
• Figure 41: Trust to give impartial advice on financial matters, by age and socio-economicgroup, November 2004
• ABC1s are more likely to place their trust in an IFA and an accountant
• C2DEs put their faith in bank staff, solicitors and Citizens Advice Bureaux
• Consumers feel the main deterrent to saving is a lack of money
• Figure 42: Factors which would persuade people to save more, by gender, November 2004
• Higher rates of return could act to stimulate saving levels
• Taxation policy would appear to have the ability to influence savers
• Other government incentives could also galvanise people to save
• Better product information and rebuilding trust would have less impact
• One in eight consumers simply could not be persuaded to save more
• Government incentives may persuade more 35-44-year-olds to save
• Figure 43: Factors which would persuade people to save more, by age group, November 2004
• Rebuilding trust would have a greater impact on AB consumers
• Figure 44: Factors which would persuade people to save more, by socio-economic group, November2004
• Changes in tax policy could influence a quarter of consumers in the South
• Figure 45: Factors which would persuade people to save more, by TV region, November 2004
• Offering advice in the workplace may help bridge the savings gap
• Half of the sample support the concept of work-based advice
• Figure 46: Consumer attitudes towards work-based advice, November 2004
• Men, younger consumers and ABC1s are more open to workplace advice
• Figure 47: Happy to receive advice from an IFA at work, by gender, age and socio-economicgroup, November 2004
• People in Scotland are less supportive of work-based advice
• Figure 48: Happy to receive advice from an IFA at work, by working status and TV region,November 2004
• 18-24-year-olds are the least likely to arrange products offered at work
• Figure 49: Would not arrange financial products at work, by gender, age and socio-economicgroup, November 2004
• More than half of the workforce would not arrange products at work
• Figure 50: Would not arrange financial products at work, by working status and TV region,November 2004
• Men are more likely to feel products offered at work would be less risky
• Figure 51: Buying a financial product offered by my employer would be less risky, by gender,age and socio-economic group, November 2004
• Four in ten full-time workers feel such products would be less risky
• Figure 52: Buying a financial product offered by my employer would be less risky, by workingstatus and TV region, November 2004

The Future

• The necessity to save can only be expected to increase
• Savings institutions need to engage with their customer base
• The regulatory regime may help to restore consumer faith
• Tackling financial capability is likely to move further up the savings agenda
• Simplifying the tax system may encourage more people to save
• The workplace is likely to develop into a key delivery channel