One in 10 Brits have no cash savings to fall back on – government action is vital

Earlier this month the Financial Conduct Authority (FCA) published its annual Financial Lives survey, which looks at the financial circumstances and attitudes of UK consumers. This year’s survey provided some stark insights, including that one in 10 people have no cash savings whatsoever, and a further two in 10 have less than £1,000 in cash savings.

For us at StepChange, this isn’t surprising, but it is alarming – consistent research has shown savings are key in preventing a debt crisis when someone faces a life shock or a large, unexpected expense. For the one in 10 people with no savings, should they lose their job or suddenly need to replace their boiler, borrowing on credit, which so often has high interest and charges, might be their only option. So how does something so commonplace turn into a debt problem?

Unfortunately, these kinds of coping mechanisms can have knock-on consequences for those who cannot afford to save. If you need your car to get to work and it fails its MOT or needs fixing, you either find the money or a way of borrowing it somehow, or risk losing your income. If your family’s fridge fails and you can’t keep fresh food you will ultimately need to replace it somehow, even if it means borrowing.

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Yet what if the consequence down the line is that repayments you can’t afford mean you’re behind on other bills, leading to more borrowing and deeper debt, or finding yourself unable to square things financially with friends or family who’ve tried to help?

And these challenges are far more likely for those who have experienced difficult financial life events like redundancy and illness. The Financial Lives survey finds that 11 million adults in the UK, have recently experienced a negative life event. Our 2019 report Life Happens looked in detail at the challenges that arise after life shocks and highlighted the importance of access to a range of financial safety nets. StepChange has since made a number of recommendations for policy changes to help improve the situation – including the development of a “No Interest Loan Scheme”, which is being piloted by Fair4All Finance and we hope will be rolled out more widely in future.

Yet since that report was published, so much has happened. We have had the Covid pandemic, the cost of living crisis arising from wildly fluctuating inflation in food and energy costs especially, alongside volatile interest rates and increased housing costs thereafter, as well as war in Ukraine leading to wider instability. As the world has continued to change, successive governments have recognised and sought to address the issues, with the household support fund, which provides emergency grants for essentials in England (matching existing schemes in the devolved nations), and other measures. But the truth is, schemes of this kind are still something of a postcode lottery. Crisis support has also tended to focus on food and living costs, rather than on helping people navigate larger unforeseen emergency expenses.

That’s why now is a crucial time to start a conversation around financial resilience and the importance of savings and wider financial safety nets. What’s abundantly clear is that we won’t solve the problem by increased access to affordable credit alone. As part of the government’s financial inclusion strategy and child poverty strategy work, we need central government to pull together other strands too into a single, coherent package.

As we see it, this means supporting saving among low-to middle-income households and expanding alternatives like small grants and affordable credit for those who cannot save. The government’s decision this week at the spending review to introduce a crisis and resilience fund to provide local grants, effectively placing the household support fund on a permanent footing, is a very welcome start. We also want to see the government support access to affordable credit by rolling out a national no-interest loan scheme for the most financially vulnerable and working with the financial services industry to support an expansion of low-cost credit through small sum lending.

Supporting people early means potentially reducing the risk of their problems snowballing into something much more difficult and much more expensive to resolve. And our own focus as a charity is on developing strategies that result in good long-term outcomes for our clients. Revisiting the issue of how crisis support should be delivered so that everyday budgeting dilemmas don’t lead to problem debt is more relevant now than ever.

Vikki Brownridge is the CEO of StepChange.

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