Context

The Wealth and Assets Survey (WAS) is a detailed, longitudinal survey of private households in Great Britain conducted by the Social Survey Division of the Office for National Statistics (ONS). The WAS provides considerable information on the wealth of households and individuals, including the level, distribution, nature and type of assets (including savings) and debts of all types as well as attitudes to financial planning, saving and financial advice.

Step Change Debt Charity commissioned two studies involving statistical analysis of the WAS data. The first explored whether a lack of savings increases the likelihood of problem debt and whether having savings might help prevent problem debt. The second built on this analysis by establishing which socio-economic groups in Great Britain have little or no cash savings and exploring the attitudes of those groups towards personal finance.

The study

The data used was from the most recent wave of the WAS, collected between July 2010 and June 2012.

The first study focussed on non-mortgage debt burden, defined as self-reported ‘heavy burden’. Data from 16,236 households were available and 1,752 of these (10.7%) were defined as having problem debt. The first study investigated any statistical link between a lack of savings and problem debt, or savings and lack of problem debt. It then estimated the levels of savings necessary to help households stay out of problem debt and the number of households across the UK without this adequate level of saving.

The second study conducted further analysis of this survey data to identify which types of UK households have any cash savings and which have at least £1,000 cash savings. The analysis uses algorithms to create classification trees to highlight groupings of households which share similarities based on multiple demographic criteria. Twelve socio-economic groups are identified for households with at least £1,000 cash savings and ten groups for households with any cash savings. Behavioural barriers to savings are also explored, using four attitudinal questions from WAS concerned with savings and related financial behaviours.

Key findings

• Cash savings are a highly statistically significant predictor for household problem debt, with the risk of problem debt estimated to be lower for households with higher cash savings.
• Taking the effect of other significant risk factors into account, for a household with an average net annual (regular) income of £25,000, the odds of problem debt are estimated to be approximately 44% lower if the household has cash savings of £1,000, 72% lower if the household has cash savings of £5,000, and 84% lower with cash savings of £10,000. For households with lower regular incomes, the protective effect of savings was found to be slightly higher.
• Using the model output to predict problem debt, the researchers estimate that approximately 3.3 million households are at risk of problem debt across Great Britain. Increasing household cash savings to a minimum of £1,000 would reduce the number of households estimated to be at risk of problem debt by approximately 500,000 households while a minimum of £20,000 would reduce this to 700,000 households at risk.
• The data shows that the group least likely to have accessible cash savings are those with a low income, living in rented housing and with one or fewer dependent children. The group with the lowest proportion of households with at least £1000 cash savings comprises households that are renting or squatting and have household net income of less than £35,050.
• Attitudes can also influence saving behaviour. Among the 12 groups with at least £1,000 of savings:
• There is little difference between the groups in terms of their attitudes to using credit - most prefer to save up and wait rather than use credit.
  • All of the groups have more households saying that they would prefer to receive £1000 today than £1100 next year, but this is slightly higher among the less affluent groups.

Points to consider

• the data can be assumed to be robust as it has been drawn from a large ONS household survey. The data excludes people in residential institutions, such as retirement homes, nursing homes, prisons, barracks or university halls of residence, homeless people and those aged 16-18 in full-time education.
• this study is highly relevant to those with an interest in reducing debt/risk of debt.
• the study surmises that increasing household cash savings would reduce those at risk of problem debt. A further report by Step Change (‘Becoming a Nations of Savers’) considers this issue further and makes recommendations to support increasing savings.

Full report

Socio-economic groups and saving - full report

Savings and problem debt - full report