Context

The UK’s financial system is built around regularity, yet for people in low and moderate-income households, irregular pay is the norm. The challenges faced by an estimated 25 million people on low and moderate incomes in the UK are often acute, with income volatility taking many forms and having many drivers.

This is the first in a suite of Impact Briefs from Nest Insight’s Real Accounts programme which will provide an in-depth, joined-up understanding of the experience of financial uncertainty among low and moderate-income households across the UK, the situations they face and the strategies they use to manage their money. The programme seeks to identify gaps and opportunities, and make the understanding of volatility central to policy and provider innovation and debate.

Real Accounts is a long-term research programme, and the first suite of briefings is intended for sharing early findings and ideas from the first six months of research.

The study

The research and analysis described in this report was conducted by a team on behalf of Nest Insight to provide an initial view of the intense challenges faced by millions of people in the UK living on variable pay.

Forty-four households across Scotland (15) and England (29) participated in the first phase of Real Accounts from July 2023 to February 2024. The sample was designed to reflect a range of backgrounds and circumstances, including by age (within an 18-65 years age range specified by the study), ethnicity, household structure, housing tenure, income level, employment and benefits receipt.

The research adopted monthly interviews and digital financial transaction tracking to build an in-depth, contemporaneous understanding of households’ income, spending and money management strategies over time. These were synthesised for the report and highlighted in ‘Real People’ case studies.

Key findings

The study developed working profiles to broadly represent the range of experiences evidenced:

• ‘Treading water’ had steady and stable incomes but were at constant risk from being unable to make ends meet because their income were low and insufficient. These are mostly single-adult households who managed every penny they had and tended to turn to family and friends for support.
• ‘A constant balancing act’ had multiple sources of income with the primary sources being unstable. They budgeted tightly, using frequent transfers to handle volatility and switching between saving and drawing on savings.
• ‘Out of sync’ had broadly stable and predictable income levels but with varying periodicity. These were ’tenacious’ money managers who attempted to match their outgoings to income timings, and to save.
• ‘Stable and steady’ had stable, regular employment which provided a sufficient, middle income. They planned and budgeted for larger expenses.
• ‘An ideal journey’ had high earning potential but their income sources were various, time-bound and calculated. They used this volatility to their advantage to actively plan for specific future goals.
• ‘Caught in a safety net’ had low incomes derived largely from social security benefits, which led to occasional but highly impactful volatility. They used various forms of credit and accessed other support available to them as benefits recipients if possible.
• ‘An unsure bet’ had incomes that switched between low and middle incomes, coming from student loans or grants supplemented with insecure work as they were investing in their future. They often did not feel very able to withstand expenditure shocks.

Points to consider

Methodological strengths or limitations

• The authors note that Real Accounts is not a nationally representative study. However, they recruited a diversity of working households with low to moderate incomes from across England and Scotland to their sample.
• Although the authors describe data collection methods which were both qualitative and quantitative, both methods related solely to a qualitative sample. As such, the results should not be assumed to be representative in a statistical sense.

Applicability

• The findings should be of interest to policymakers, practitioners and researchers at the national and local level who seek to understand the heterogeneity of low- to moderate-income working households in the UK and thereby improve the effectiveness of policy and product innovation.

Relevance

• The findings are highly relevant given the heterogeneity of low to moderate-income working households, the diversification of financial pathways over the life span (e.g. portfolio careers), a decrease in secure employment and an increase in insecure work, particularly through the zero-hours contracts, temporary work, commission and self-employment.

Generalisability/transferability

• The findings are unlikely to generalise to other groups given the particular volatility challenges faced by low- to moderate income households.
• Some of the findings may transfer, at a high level at least, to other countries where there are similar income, employment and social security structures.