Extending Help To Save to debt solution customers

Financial Wellness Group is calling for the extension of Help To Save to people on all recognised debt solutions, who wouldn’t otherwise qualify for it. Creating good outcomes for people with serious problem debt isn’t just about helping them get debt free. It is also about supporting customers to learn how to budget, save and live within their means, and giving them the confidence and tools to remain debt free in future.

Encouraging customers who are working to clear serious problem debt to save will improve their financial resilience and help them stay debt free when they complete their debt solution. Three quarters (74%) of debt solution customers who responded to a Financial Wellness Group survey said that having a savings pot would help them avoid falling into problem debt again after their debt solution*.

Extending Help To Save to people on a debt solution would also enable debt advice providers to support the overall promotion and take up of the scheme.

Improving outcomes for customers on debt solutions

Customers on debt solutions are already able, as part of their Standard Financial Statement ‘budget’, to set aside up to 10% of their disposable income (to a maximum of £20) per month as savings.  This is something that we propose customers do – and about 1 in 10 take the option.

Creditors, including those in insolvency solutions where there will often be an element of debt write off, are usually willing to accept that customers include an element of savings in their budget.

Almost a quarter (23%) of Financial Wellness Group’s customers are managing to save at the moment – with many using savings to help them deal with the extra cost of Christmas, birthdays or small financial shocks.  38% of customers say that they’d like to start saving, but other spending priorities keep coming up and a further 39% of customers say that their current budget is too tight to allow for savings.

Enabling customers on a debt solution to access Help To Save would give them a strong incentive to put money aside and build a savings pot. On completion of their debt solution their savings would help increase their financial resilience and make it less likely that they would need to borrow.

For example a customer that is able to save £10 a month for four years whilst on a debt solution would save £480 and might typically earn interest of less than £2.50.  If they had had access to Help To Save they could earn a bonus of £240, topping their savings up to £720.

The savings problem

Ten million people in the UK have no savings with over half (53%) of those between 22-29 having no money saved at all (source: YouGov).  Having no savings leaves people incapable of overcoming even small financial shocks – like needing to replace a fridge or a cooker, or get a problem with their car fixed. As a result they are more likely to resort to borrowing.

By definition people with problem debt have exhausted any savings they had. If they are able to build a savings pot whilst tackling their debt problem, then when they complete their solution they will be better placed to deal with any future financial needs.

The benefits of Help To Save

Help To Save is designed to help people on low incomes start saving. It is open to people who are:

• receiving Working Tax Credit
• entitled to Working Tax Credit and receiving Child Tax Credit
• claiming Universal Credit and whose household earned £604.56 or more from paid work in their last monthly assessment period

Help To Save is a flexible savings scheme that allows people to save up to £50 a month for up to four years. The government tops up the savings pot with a bonus of up to 50% of what they customer has saved. So somebody who saves the maximum £2,400 could earn a £1,200 bonus top up. Customers can withdraw money if they need to.

According to HMRC and the Money and Pensions Service, although 220,00 Help To Save accounts have been opened, this represents just 4% of those eligible to open one.

The existing Help To Save scheme would need minimal changes to make it work well for people on debt solutions.

 

*Financial Wellness Group customer survey conducted between 23^rd-29^th October with over 700 responses from customers on a DMP, IVA, DAS or Trust Deed.