‘How could it be done better?’
This question underpins our approach at Nest Insight, as we think about how the system in which low-, moderate- and volatile-income households are managing their money could be optimised to support greater financial security for all.
Solutions built around real-world needs
This often means trying things that haven’t been done before. For example, we asked:
- ‘How could the tension between saving for today and saving for tomorrow better be managed?’
This led us to our sidecar savings trial in which for the first time in the world (as far as we’re aware) we piloted and tested a hybrid savings solution bringing together emergency savings and pension saving in one place. Workers liked the idea, and we saw that people were able to make additional above-minimum pension contributions once they had got a savings buffer in place for the short-term.
- ‘What could be done to overcome the barriers that get in the way of people becoming savers?’
Having seen a big gap between intentions to save and actual sign-up numbers in our sidecar trial, we next explored what would happen to payroll saving participation if we made it as easy as possible for people to start saving. We flipped the default, so that those who want to save do nothing, and those who don’t want to save need to opt out, in one quick step. The results from this new approach trialled across SUEZ, Bupa and Co-op were striking, with many, many more people saving and building financial resilience as a result. We’ve also seen that this version of workplace savings is both highly popular and more inclusive of those who are typically excluded from saving.
- ‘Is there a better way for self-employed people to build savings for retirement that fits with their income patterns?’
We knew that most self-employed people want to save for retirement, but find that standard ways of making pension contributions don’t fit with their often variable and uncertain income patterns. We worked with Moneyhub, Penfold and Nest to test smart suggestions and variable savings mechanisms that better flex to self-employed people’s contexts. The learnings from these pilots point to the potential to support greater inclusion in retirement saving for self-employed people if we can design in defaults and nudges tailored to their needs, across touchpoints where they are already managing their money.
Innovative research approaches that unlock new insight
We also ask ‘how could it be done better?’ when we’re designing our research approach for a project – trying to combine the different tools in the research toolbox in the best possible way to answer our research questions. Our team brings a diverse range of skills and backgrounds, including in evaluation, behavioural science, co-design, data analytics, qualitative and quantitative research and innovation. We aim always for our research to be robust, creative, pragmatic and inclusive, reflecting the breadth of diverse perspectives and circumstances that make up low- and moderate-income households in the UK. Sometimes this means inventing a new research approach altogether to meet our research objectives.
The Real Accounts research that we launched recently is a really good example of this. Large scale surveys are great at tracking annual income and earnings trends. But they fail to pick up in-year variations. We became interested in better understanding income volatility and the impact it might have on household financial security, having seen work like the US Financial Diaries. Financial diaries approaches are highly labour intensive – for research participants and researchers alike. We wanted to spend more time having in-depth conversations with the households we worked with, and less time logging payslips and receipts! Having seen the value of getting one view across accounts in our previous work with Moneyhub, we wondered if this kind of open-banking integration and machine learning could have another application in research.
We worked closely with the Moneyhub team to build a bespoke research data collection tool called ‘My Money Tracker’ that would securely hold and analyse data across the different current accounts, savings accounts, credit cards and loans held by our research participants, allowing us to track almost every pound going into and out of a household. This rich transaction data, when combined with hours of in-depth interviewing, allowed us to see how behaviours and emotions in response to income volatility played out over a year in around 50 households.
Looking with these different lenses unlocked new insights. We could see the extraordinary number of transactions and transfers that people were undertaking just to get by day-to-day in a system that is designed for regular monthly salaries, rather than their lived reality. Irregular incomes make it difficult to manage day-to-day expenses, plan for the future, and build financial security The volatility premium is a hidden cost that erodes financial resilience, limits opportunities, and presents long-term risks, contributing to economic inequality across the UK.
We would not have been able to understand the full financial and emotional costs of income volatility without getting a joined-up view across the different parts of the household balance sheet and over time. And now we’re wondering, could the approach we used in our research have broader applications as we start to think about solutions to better support households with variable incomes to build greater financial security…?
Inclusive design tailored to variability and uncertainty
As the Government works together with the new Financial Inclusion Committee to set out a national Financial Inclusion Strategy, and the Financial Conduct Authority continues to hold firms to their Consumer Duty and has a new regard to financial inclusion, it’s a timely moment for considering how to place real-world needs and experiences at the heart of solution design.
All of us working within and on the system need to think about how to make it work better for people living on lower and variable incomes. We need to design and build with experts by experience rather than assuming what will work for them. Data and open-banking don’t provide all the answers, and we need to think very hard about how to address digital exclusion, but they are definitely part of the solution.
We’re excited by some of the emerging examples we see of solutions designed to reduce the volatility premium and support people towards greater financial security, such as:
- Moneyline’s issue of a loan that can be repaid using variable recurring payments, allowing customers to easily amend their loan payment amount up or down.
- Octopus Energy’s variable Direct Debit where customers pay for exactly what they use each month.
- Superfi using open banking to help customer optimise their strategy for paying bills
- PayCaptain’s SmartPay which makes personalised recommendations that are responsive to variations in pay to help employees meet financial goals
We hope that the insights from the Real Accounts programme will help underpin future inclusive design of both policies and products.
If you’d like to support further work in this area, or would like to partner with us on future research and trials, please do get in touch.
Jo Phillips, Director of Research and Innovation, Nest Insight
