Unforeseen irregular expenditures can dishearten even the most enthusiastic of savers. Providers could improve their targeting of the young family demographic by varying their saving propositions to reward seasonal or irregular saving.
The majority of saving propositions are built around regular saving, which is mostly suited to consumers who are either single or who have a very stable monthly income and spending pattern. For consumers who do not fit this mold, trying and failing to save regular amounts can be disheartening. For example, young families with both parents working have to manage high child care costs, school holidays, and term-end bills for extra-circular activities, which make regular monthly saving impractical. The financial pressures young families face are reflected in our 2016 Retail Banking Insight Survey, which shows that demand for personal financial management tools and services is highest amongst 25–34 year olds.
It is important to note that young families do have a financial spending pattern; it’s just that it is more of a seasonal than a monthly pattern. Fintech startups are starting to address this issue by helping consumers consistently save irregular amounts. Digit analyzes previous spending history to then identify periods when spending is below average, sequestering the “excess” cash into a specified savings account. ING recently launched “Look Ahead,” which predicts outgoings over the next 35 days based on analysis of previous transaction history.
Conventional wisdom says that a set amount of savings should be transferred consistently at the start of the month to avoid being spent. That used to work for many, but the finances of today’s young family are more closely aligned with an SME – irregular and unpredictable. Providers should match saving incentives, such as higher interest rates or saving bonuses, to periods when young families actually have the cash to save. This would lead to improved customer engagement and better retention of a key income-generating demographic.
By Sean Harrison, Retail Banking Analyst