StepChange Debt Charity calls for Government to introduce 'rainy day' savings funds.
Modest savings of just £1,000 would prevent thousands of families falling into problem debt.
That's according to new research from the StepChange Debt Charity, which found that even having relatively small amounts of money saved away can help keep problem debt at bay for 500,000 households. And it's now calling for the Government to implement 'rainy day' savings funds for all.
We aren't saving enough
The study found that 13 million people in the UK lack the savings to keep up with essential bills for even a month if their income dropped by a quarter. Perhaps unsurprisingly, the problem is most pronounced among low- and middle-income households - 42% of people earning less than £15,000 a year don’t have a month’s savings, which falls to 34% for people earning between £15,000 and £25,000.
[SPOTLIGHT]Overall, a worrying 27% of households don't have savings worth a month's salary.
We need to help lower-income households more
One area that the StepChange Debt Charity has highlighted which needs to be looked at is the tax relief on ISAs. In 2013/14 it cost in at £2.85 billion, and will rise to £3.42 billion in 2018/19. But it's higher-income households that benefit the most - households earning below £26,000 are just half as likely to have an ISA as those earning between £50,000 and £80,000.
Saving for a rainy day
StepChange is urging the next Government to set a target for every household to have £1,000 saved for emergencies.
It suggests building “rainy day” pots into the Government’s auto-enrolment framework for pensions.
The proposal would have two key features:
- Saving under the scheme would be incentivised with the Government and employers agreeing to match a proportion of the amounts saved through tax relief and employers’ contributions
- Pots would be retained if the individual wishes to change jobs or becomes unemployed
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How to start your own savings pot
You shouldn't wait for the Government though - you can start building your own rainy day savings pot today.
First of all, sit down and work out how much you could feasibly put aside a month. Aim for a little more than the bare bones, but not such a high amount that you won’t achieve your target. Even if you can only manage a tenner, the savings will still build up over time.
If you’re brand new to saving, you could try putting your funds in a regular savings account. These require you to put away a certain amount every month (usually between £1 and £250) with competitive interest rates for a year. However, if you miss a payment or withdraw cash in those 12 months, you’ll lose a substantial amount of interest.
This type of account is a great starting point if you really want to boost your savings and have the discipline to leave your account alone for a year.
But if you want instant, penalty-free access to your savings, you should opt for an easy access account which you can dip into in an emergency. Read The best instant access savings rates.
You can set up a standing order or direct debit from your current account which will go into both regular and easy access accounts.
Do you have a rainy day savings pot? Would do you make of StepChange's proposals? Let us know in the comments section below.
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