How credit unions are helping to create good savings habits

Matt Bland is Head of Policy and Compliance at ABCUL, Britain’s leading trade membership body for credit unions. Here, he talks about the benefits of saving as we borrow and how credit union methods are promoting good savings behaviour.

The Fairbanking Foundation’s report, ‘Save as you Borrow — credit unions creating good habits’ not only raises the issue of how people on low incomes are struggling to save, but also how credit union practices are helping to change this behaviour.

Nationally, there’s increasing concern about high levels of consumer borrowing, paired with low levels of saving. Most money experts and economists would usually recommend an individual pays off debts before saving, in order to minimise interest payments.

However, The Fairbanking Foundation report, which we supported at ABCUL, highlights that the ‘Save as you Borrow’ method has helped turn 71% of credit union borrowers surveyed into regular savers, with almost three quarters having never, or only occasionally, saved before.

This strategy involves people being asked to save a small amount at the same time as paying a loan off. And it works with an individual’s behavioural biases to help create saving habits at the point of a person looking for credit.

There’s evidence that this approach reduces the vulnerability of those on low incomes, who might instead be considering high interest loans and payday lenders.

26% of working age adults have no savings

There’s an increasing amount of interest in policy which effects behavioural change, for example pensions auto-enrolment, and saving as we borrow is a long-standing practice that uses similar techniques.

Worryingly, 26% of working age adults having no savings at all, and a further 29% have less than £1,000 saved for the future. With this in mind, we’re working hard at ABCUL to make sure that this practice of credit unions and its transformational effects are fully understood and appreciated.

We encouraged researchers to engage with our members for the report, which also cites the four main reasons why credit union members are happy to save as they borrow: it’s easy, as it’s done for them, it offers a rainy-day fund, it offers a lump sum at the end, and it gives them a sense of achievement.

Helping the financially vulnerable

Credit unions have an increasingly important role to play in consumer finances in the UK. Eleven of ABCUL’s member credit unions have been awarded the 5-star Fairbanking Mark for building lending products which enhance financial wellbeing. This is a huge step forward and the highest honour achievable. The ‘Save as you Borrow’ practice is at the heart of this.

The independent recognition, along with strong evidence for the impact of Save as you Borrow methods employed by the credit union movement, demonstrates exactly how important credit unions are in helping the financially vulnerable become more resilient.

ABCUL will continue to push for further awareness of the presence and benefits which credit unions have to offer — particularly through active promotion of credit unions’ role in the workplace.

Want to find out more about the work of ABCUL’s policy team? You can email Matt Bland.