Why the ability to save is an important component of financial inclusion in the workplace

In general, we all know that saving for a rainy day is beneficial. Whether it be for unexpected bills, insurance, car repair costs or important events and celebrations, it always helps to have a little stashed away. The amount needed becomes significantly larger if we factor in a possible job loss and its impact on ourselves and our household financial situation. This is why – in general – think tanks and money advice services recommend we have a nest egg of at least three times our monthly salary. For some, this is achievable. For others, this is easier said than done. What if your intention is to save, but you are unable to do so?

Financial inclusion

Financial inclusion has become a buzzword across developing countries as global banking institutions, governments, fintech startups and savvy entrepreneurs race to enable those who are illiterate, hard-to-reach or marginalised to gain access to banking services and products. According to the World Bank, there are two million ‘unbanked’ adults worldwide. It has become easier to reach these individuals on account of digitisation and mobile-based banking services, allowing the previous ‘unbanked’ to become ‘bankable’ and build up a (credit) identity.

At its core, financial inclusion starts with owning a transaction account, which enables individuals to store money, send and receive payments. As account holders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risk, and weather financial shocks, which can improve the overall quality of their lives. As the latter two benefits state, the ability to save is an important component of financial inclusion.

It’s not just in developing markets, however, that further steps can be taken to increase people’s financial security and stability. Savings are crucial in building financial resilience. They help people meet unexpected demands, smooth peaks and troughs in income and spending, and limit the need for borrowing. Yet only 41 per cent of the UK population report having any savings. Meanwhile, StepChange Debt Charity has estimated that having £1,000 worth of savings could have prevented half a million people from falling into problem debt.

The state of financial inclusion in the UK

The Financial Inclusion Commission, an independent body of experts and parliamentarians, came together to assess financial inclusion on the political agenda ahead of the 2015 election. They released a report on the state of UK financial inclusion, which included their vision that by 2020, “every adult is encouraged and enabled to save, even in small or irregular amounts”. The reality is that up to 8.8 million people in the UK are over-indebted, nearly two million UK adults do not have a bank account and 13 million people do not have enough savings to support them for a month if they experienced a 25 per cent cut in their income.

When it comes to savings, a key challenge highlighted in the report is that “savings products are not suitable or rewarding enough for those wanting to save small sums”. Interest rates have not kept up with inflation, and often access to savings products which offer better returns incur fees which are too expensive for those who only have small sums to save.

Savings for all

One way of combating this issue is by offering savings products which are accessible, transparent and easily understood and – above all – do not incur high fees which price out many individuals. By offering Investment ISAs, Lifetime ISAs and personal savings accounts which offer market-rate (as opposed to interest rate) returns with low fees, saving can become a habit which is accessible and lucrative for all. It is therefore crucial that savings – and the ability to save with the possibility of attractive returns – is offered to all through an accessible and easy to use platform, making these solutions readily available for all types of savers, and not just experienced investors.

The author is Ben Hollingdale, head of sales at Smarterly.

This article was provided by Smarterly.