Asset-building and the Saving Gateway

Increasing asset holding can offer positive help

The anti-poverty lobby and living wage campaign are well established. A more recent innovation is asset-based welfare policy. It is suggested that increasing an individual’s or community’s asset holding can increase social mobility and offer a positive route out of financial exclusion and poverty.

Raising income is part of the Government’s welfare policy and financial assets have a complementary role to play.  Having money put aside smoothes peaks and troughs (and acts as an alternative to a short-term loan); it also allows people to take advantage of opportunities which might otherwise be denied (eg, paying for further education); in the longer term it can offer a more comfortable retirement. The act of saving reinforces longer-term thinking and a sense of responsibility for one’s future. Holding a savings product also reduces financial exclusion.

Research shows that people on lower incomes are least likely to save or hold assets. They are also unlikely to be affected by tax breaks, which might be attractive to people on higher incomes. The Saving Gateway is one policy the Government is piloting to encourage low-income households into saving. The scheme offers to match an individual’s savings, a pound for a pound up to a specified limit and is run through trusted community-based organisations, which act as intermediaries between the client and the delegated bank (the Halifax). Given the expense of the project and the target group, the Saving Gateway has caused much controversy.

One valid question raised by the Institute for Fiscal Studies is whether people on low incomes should be encouraged to save in the first place and incentivised with such high returns. Its work suggests that only one in eight of the poorest fifth of the population will benefit from the Saving Gateway in the way that the Government expects and that those left may indeed borrow to save into the scheme. Others argue that people on such low incomes do not have a disposable income in any case. If their low levels of income necessitate a hand-to-mouth existence, should longer-term thinking and financial planning be encouraged? Increasing income should be the priority.

Research from a similar scheme in America shows that people on low incomes can, and perhaps more importantly want to, save small amounts on a regular basis. For many people the Saving Gateway replaces an existing informal form of saving (the jam jar for instance). The saving scheme offers a decent return on very small savings that people on higher incomes would benefit from through tiered interest rates and tax breaks. Why should poor people not reap as comparable rewards for saving as people on higher incomes?

A balanced view needs to be taken on asset-based welfare policy: it is not a case of either income or assets, but of both income and assets. For those people who want it, there should be the opportunity of saving and reaping clear benefits. If the aim is to increase financial inclusion, the answer is not to keep people in ignorance, excluded from products that policy makers judge unsuitable. People on low incomes have every right to make the decision for themselves. Policy, therefore, needs to be equally concerned with what informs individuals’ decisions and how education can best be delivered to ensure that all people (whatever their income) are enabled to make the right decision given their circumstances

If you wish to discuss any Financial Inclusion / Exclusion issues with our support team please telephone freephone 0800 074 6918.

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Financial Inclusion Menu

• Aims of financial inclusion
• How the Government is supporting financial inclusion
• Promoting financial Inclusion
• Financial Inclusion Taskforce
• The reality of financial exclusion
• The implications of being financially excluded
• Toynbee Hall and SAFE: Services Against Financial Exclusion
• Asset-building and the Saving Gateway
• Financial education
• Basic bank accounts
• Financial Inclusion fund for England & Wales
• Conclusion