Context

The Money and Pensions Service (the Money Advice Service at the time of this report) has a remit to ‘change people’s lives by helping them make the most of their money’. They are a major funder of free debt advice across the United Kingdom. Their remit is to enhance people’s understanding and knowledge of financial matters; enhance people’s ability to manage their financial affairs; and work with other stakeholders to improve the availability, quality and consistency of debt advice. To fulfil this remit, it is essential for them to understand the differing financial needs of consumers in the UK.

The study

This 2016 insight report had five main objectives:

• Understand how consumer needs differ and identify the areas of greatest need;
• Provide a common language across the organisation to be used when designing services;
• Improve the targeting of organisational resources;
• Inform the UK Financial Capability Strategy;
• Facilitate dialogue with financial services institutions and third-sector organisations about understanding and communicating with consumers.

The requirements of any segmentation solution were that it should:

• Group UK consumers into easily understood and discrete segments;
• Be focused on financial capabilities;
• Encompass Money and debt advice;
• Recognise the importance of different life-stages;
• Have sufficient robustness and longevity;
• Be intuitive and easy to understand;
• Be applicable to other datasets.

The Money Advice Service decided the segmentation should be based upon financial resilience. This was defined in terms of five ‘pillars’ consisting of income, savings, protection, credit and demographics.

The approach decided on was to use an existing segmentation system (CACI’s Fresco model). The Fresco model was created from a variety of data sources, including GfK’s Financial Research Survey. This is a nationally representative survey of 60,000 adults. The Fresco model consists of 12 core segments, within which were 134 micro-segments, which formed the building blocks of this segmentation. These were then refined using data from the Money Advice Service’s 2015 Financial Capability Survey. Hierarchical cluster analysis was used to determine the segments.

Key findings

The segmentation comprises three macro-segments, and 15 sub-segments. The macro-segments are comprised as follows: : Comprising almost a quarter of the UK adult population, they struggle to keep up with bills and payments and to build any kind of savings buffer. They are the least financially resilient and most likely to be over-indebted.

• Most likely to have low or no qualifications (60%, compared to a UK average of 43%).
• Predominantly in social housing, and the most likely group to be not working or unemployed (23% compared to 12% overall).
• Heavily dependent on benefits, with a low household income and hardly any savings.

: Comprising a quarter of the UK adult population, they are working age consumers with significant financial commitments but relatively little provision for coping with income shocks. Digitally ‘savvy’ with high media consumption, though mainly for entertainment rather than financial information.

• Mainly in mortgaged or private-rented accommodation, and the most likely to be employed (58% compared to 42% of the UK population overall).
• A household income of just above the national average, with an average savings buffer of £580 (compared to a UK average of £1,000) and the highest level of debt-to-income.
• The lowest number of people who think they budget well (51% compared to an overall UK average of 61%).

: Almost half of the UK adult population, this is the most financially resilient group with the highest levels of income and savings and the lowest levels of over-indebtedness:

• Most likely to be owner-occupiers (75% compared to 59%) and in full-time employment; also with the highest percentage of retirees.
• Most likely to keep up with bills without difficulty and the most confident about managing money.

The sub-segments map onto these macro-segments as follows:

• Over-burdened;
• Struggling younger adults;
• Struggling working families;
• Struggling pre-retired;
• Struggling retired.

• Squeezed younger adults;
• Squeezed younger families and couples;
• Older squeezed.

• Younger adults in affluent homes;
• Comfortable younger adults;
• Affluent couples and families;
• Affluent pre-retired;
• Comfortable pre-retired;
• Comfortable retired;
• Affluent retired.

Points to consider

• **Methodological strengths and limitations:**There are few methodological details available in this report, with the reader having to consult a separate document to assess the suitability of the methods employed.
• This report is relevant to all stakeholders, academics and policymakers who are interested in segmenting the UK population according to their financial behaviour and capabilities.
• This report uses a robust methodology and the results are based on a large sample. Therefore, these findings can be applied with a degree of confidence universally within the UK.