‘Nudging’ makes us better savers, new study shows
An innovative project uncovering how behavioural insights can make people better savers encouraged participants to set money aside from their salaries for the first time.
The initiative is the result of a collaboration between London fintech Level; Capita, the consulting and digital services firm; the Money and Pensions Service (MaPS) and the Behavioural Insights Team (BIT), also known as ‘The Nudge Unit’. By bringing together stakeholders from the public and private sectors, the project champions an industry-wide approach to encourage people in the UK to save more.
Level’s app – which offers on demand pay and salary-linked savings and budgeting tools, alongside financial advice – was deployed to Capita’s workforce in January 2021.
Figures from the Money & Pensions Service (MaPS) show 11.5 million people in the UK have less than £100 in savings. In response, the study showed how well-designed payroll-based savings schemes can deliver impactful results for those with low or minimal savings. Participants set aside a median level of savings of £50 a month per person.
Over eight months, using insights from behavioural science, communications to Capita employees were redesigned and tested to understand the most effective ways to encourage more people to use the Level salary-linked savings product to help them become better savers.
The study found that communication that highlighted the ease with which users could start a payroll savings scheme was five times more effective at encouraging sign ups than traditional product promotion.
One in three users reported having no savings before signing up to the scheme through Level, while a similar number said they would last ‘less than a month’ if they lost their main source of income, potentially having to rely on credit or borrowing from friends and family if they faced unforeseen expenses.
During the Level project, the median savings rate per user was £50 per month, while the majority of those who signed up earned less than £25,000 per year.
Once enrolled in the payroll savings scheme, most were happy to leave ‘as is’ and not make further changes. More than three quarters (76%) kept their savings the same during that time, while 16% increased the amount they saved. Very few individuals (7%) decreased their savings.
Stephen Holliday, Founder and CEO of Level, said:
“We strongly believe in the importance of fostering a savings culture in the UK, and this study has demonstrated how employees respond positively to their employer actively taking steps to encourage savings.
“The pandemic and the rising cost of living demonstrates the importance of preparing for the unexpected, which is greatly assisted by building a savings buffer.”
Scott Hill, Chief People Officer at Capita plc, said:
“The Level app has proven to be an incredibly useful savings tool for colleagues who took part in the initiative. At a time of considerable economic challenges for many, we will continue to actively promote this service to all of our staff to support their financial wellbeing.”
Johannes Lohmann, Head of Work and Finance at the BIT, said:
“A lot of people would like to save more of their money, yet part of the problem is that it isn’t easy enough to save. Payroll savings can make saving money a lot easier, and this study has shown that behavioural science can be an effective tool to increase the take-up of payroll savings products and help people start to build a savings buffer.”
Sarah Porretta – Executive Director, Money and Pensions Service, commented:
“As part of our UK Strategy for Financial Wellbeing, we have an ambition to improve the resilience of millions of people across the UK by increasing the number of new savers on low-to-modest incomes.
“Employers have a vital role to play in supporting their employees’ financial wellbeing and resilience in these uncertain times. When four in ten people have less than £100 in a savings account, working with employers and providers to offer salary-linked savings products is at the heart of meeting this challenge.”