1

Research on budgeting behaviour and the

scope for a Budget Account

A research report for: HM Treasury

Provided by: GfK NOP Social Research

Date: September 2010

Your contacts:

Amrita Sood, Director

Polly Hollings, Associate Director

Phone:+44 207 890 9774 / 9763

e-Mail: amrita.sood@gfk.com / polly.hollings@gfk.com

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Table of Contents

1 Executive Summary ...............................................................................3

2 Introduction ...........................................................................................6

2.1 Background ...................................................................................... 6

2.2 Objectives ........................................................................................ 7

2.3 Method ............................................................................................ 8

2.4 Research process .............................................................................. 8

2.5 Sample ............................................................................................. 8

3 Research findings ..................................................................................9

4 Current financial management ..............................................................9

4.1 Financial budgeters ......................................................................... 10

4.2 Financial jugglers ............................................................................ 11

5 Ideal financial management ............................................................... 12

5.1 Budgeting ....................................................................................... 12

5.2 Access and notifications .................................................................. 13

6 Budget account appeal and drivers .................................................... 14

6.1 Reassurance ................................................................................... 15

6.2 Convenience ................................................................................... 16

6.3 Associated benefits ......................................................................... 16

6.4 Strength of appeal .......................................................................... 18

7 Functionality ....................................................................................... 20

7.1 Money paid into account ................................................................. 21

7.2 Money set aside for bills .................................................................. 21

7.3 Automatic bill payments .................................................................. 23

7.4 Rest of the money .......................................................................... 24

8 Channels for account set-up and management .................................. 26

8.1 Account set up ................................................................................ 26

8.2 Ongoing account management ........................................................ 27

9 Budget account fee ............................................................................. 27

10 Conclusions and recommendations .................................................... 29

11 Appendix ............................................................................................. 32

11.1 Sample ........................................................................................... 32

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Executive Summary

GfK NOP was commissioned by HM Treasury to undertake qualitative research to inform the

design of a Budgeting Account. The key aims of the research were to:

Explore budgeting behaviour and attitudes among the financially excluded and those who

may benefit from a budgeting account.

Inform the design of a practical, marketable and commercially viable product.

The research took place across the country and included:

16 x case study depth interviews with those who were currently unbanked including those

with and without a POCA.

8 x case study depth interviews with those who were recently banked (had become

banked within the last 5 years).

2 x focus groups with those who had been banked for five or more years.

The findings of the research are summarised below.

Curr

ent

financi

al m

anagem

ent

Two financial mindsets emerged across the research:

o Financial budgeters: those who have a structure in place for how and

when their money is spent. These participants seek control over their

money, often due to previous experiences of severe debt or financial

concerns. Financial budgeters all use a number of budgeting strategies

and monitor their financial situation on a frequent basis.

o Financial jugglers: those who have a less structured approach to

managing finances. These participants often feel that they do not

manage their money well and tend to use fewer budgeting strategies

when compared to financial budgeters. This means that they often

juggle their finances and are often short of money towards the end of

the week or month.

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Ideal financi

al m

anagem

ent

When thinking about how they could better manage their finances participants

mentioned ways to improve budgeting, access to their money and notifications of

their financial situation.

o Budgeting: participants suggested that a system that provided a

structured way for paying and setting money aside for bills would be

useful. In particular participants mentioned the benefits of setting

money aside and knowing that any money left was disposable income

that they could spend.

o Access to money: banked participants noted that ideally, they would like

to be able to withdraw money from any ATM without a charge.

Unbanked participants who currently withdrew money at the post office

counter noted that they would prefer, and find it easier, to withdraw

money at an ATM, particularly citing the convenience of 24-hour access

to money.

o Notifications: banked participants noted that their budgeting would be

improved if they received notification from their bank to advise them

when their account balance dropped below an agreed sum. Key to this

was the ability to avoid becoming overdrawn.

Budget

acc

ount

appeal and d

rivers

Across the research there was high appeal for the budget account. The majority

of participants envisaged that the budget account would replace their existing

account. Budget account appeal was strongest for those who were unbanked

with a POCA.

Budget account appeal was limited or low for: those who had a fluctuating

income and worried about regular payments; those operating within a deeply

embedded cash culture; and those who had a preference for a bank account.

Appeal was driven by reassurance and convenience.

o Reassurance was particularly appealing to financial jugglers for whom

the budget account provided a budgeting structure to ensure money was

available to pay bills.

o Convenience was particularly appealing to financial budgeters who were

keen to make payment of bills easier and more time efficient.

Additional benefits of the budget account included: the ability to create personal

savings; saving money on bills via automatic payments; and improving credit

rating.

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Funct

ionalit

y

Participants envisaged that wages/ benefits would be paid directly into the

budget account but also wanted to be able to pay in cash and cheques.

It was suggested that they would agree with the account provider the amount of

money that would be set aside. They envisaged using this function for core

priority bills – the number of these differed across participants but typically

included rent, council tax, electricity and gas.

Participants were keen to involve an element of saving via the budget account

either by setting money aside in a specific „savings pot‟ or, by over-paying on bill

payments.

Participants queried the level of flexibility that would be available for accessing

money set aside for bills. Some sought clarification that this would be easily

accessible, and were unlikely to consider a budget account without this

reassurance. However, others – often financial jugglers – felt that limited or

time-sensitive access would be preferable to ensure that money was safeguarded

for bills.

For many unbanked participants automatic payments were not perceptually

aligned with direct debits; they were seen as a different way of making bill

payments. This meant that unbanked participants did not cite barriers to using

these, such as fear of debt, which are often raised in relation to direct debits.

Participants wanted access to left over money via ATMs.

Channels

for

acc

ount

set-

up a

nd

managem

ent

When thinking about setting up a budget account participants envisaged this

would involve an element of face-to-face interaction. Financial budgeters were

most likely to comment that they would feel comfortable in setting up an account

and identifying amounts of money to be set aside for bills. However, financial

jugglers were more likely to note that they would require help in deciding these

amounts and in generating a budget. These participants suggested that the

account set up process involve an element of advice.

It was suggested that notifications of when bills had been paid and warnings for

when there were insufficient funds in the budget account be provided via mobile

phone text or email.

Participants sought easy ways to monitor their budget account including: mobile

phone text updates; postal statements; mini-statements from ATMs; an online

tool.

Budget

acc

ount

fee

The majority of participants who were interested in a budget account felt that a

small fee would be acceptable.

Whilst there was little consistency regarding the amount or structure of the fee

most mentioned a regular account fee (weekly or monthly).

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1 Introduction

1.1 Background

GfK NOP was commissioned by HM Treasury to undertake qualitative research to inform the

design of a Budgeting Account. Promoting financial inclusion continues to be a priority for the

Government, and it has taken responsibility for developing a strategic policy response for this

whilst working with key stakeholders from the financial services industry, third sector and

elsewhere. The key priorities are to support individuals to:

Manage money effectively, securely and confidently on a daily basis;

Plan for the future and cope with financial pressure by helping families to protect against

fluctuations in income and expenditure and enabling them to take advantage of long-term

opportunities;

Deal effectively with financial distress should unexpected events lead to serious financial

difficulty.

A Budgeting Account would be targeted at poorer households and support with budgeting and

the responsibility of bill paying. Specifically it could ring fence a proportion of income each

week to be used to pay bills by direct debit on a monthly or quarterly basis. This would

enable people to take advantage of savings gained by paying for bills in this way. It should be

noted that this could remove the flexibility offered by budgeting in cash and using „jam jar

financial buffers‟.

This research explored needs and requirements of potential customers in relation to this

Budgeting Account.

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1.2 Objectives

The two key objectives for the research were to:

1. Explore budgeting behaviour and attitudes among the financially excluded and

those who may benefit from a Budgeting Account.

Detailed exploration of how people manage their money and budgeting strategies

o Channels currently used for paying bills, and channel preference

o Strategies for meeting bill payments – cost and time

o How and when bills are prioritised

Exploration of barriers experienced when managing finances including:

o What makes it difficult for unbanked people to manage finances and ensure

outgoings are covered, and to what extent banking functions such as direct

debit would alleviate problems.

o How banked people use banking functions to manage finances and ensure

outgoings are covered; which functions they use, which they avoid using and

why.

2. Inform design of a practical, marketable and commercially viable product.

Investigation of attitudes towards a Budgeting Account

o Advantages and disadvantages of a Budgeting Account

o Envisaged changes in managing finances with a Budgeting Account

o What would make a Budgeting Account more attractive.

Exploration of ways in which a Budgeting Account would work

o Channel preferences for accessing a Budgeting Account

o What functionality people would like with the Budgeting Account including:

Online budgeting tools

Flexibility for changing deduction dates

Card-based access

Surplus funds available by card

Weekly or daily availability of surplus funds or funds available on

demand

Exploration of market demand for a Budgeting Account

o Propensity to take-up a Budgeting Account

o What other benefits people would like to be offered

Retailer discounts

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Lower rates with utility providers

Generation of a credit record they could borrow against

o Willingness to pay a regular fee for an account

1.3 Method

The research was carried out using a mixed-method qualitative approach.

1.3.1 Case study depth interviews: unbanked and recently banked

Case study depth interviews were carried out with those who had become banked within the

last 5 years, and those who were currently unbanked. The case study depth interviews took

place on a one-to-one basis and lasted 1.5 hours. These took place face-to-face and usually

in a central venue that was familiar and convenient to participants. The case study depth

interviews enabled researchers to gather a detailed understanding of how participants manage

their finances and to fully explore their views of a Budget Account.

1.3.2 Focus groups: 5+ years banked

Focus groups were carried out with people who had been banked for five or more years. Each

focus group lasted for 2 hours and included between 6 and 8 participants. Focus groups gave

participants the opportunity to discuss their budgeting behaviours, and share and debate their

views of the Budget Account.

1.4 Research process

Each case study depth interview and focus group enabled participants to describe their

behaviours and views towards a Budget Account in an open forum. Participants were

encouraged to provide spontaneous views towards a Budget Account and related functionality

before being prompted on specific ways in which a Budget Account might work in practice.

This approach meant that the research was able to go beyond an assessment of general

appeal of functionality, and explore to what extent participants felt a Budget Account could

best meet their needs.

Show cards were used to describe to participants how a budget account would work. This

involved explanation of the following components:

Regular deductions would be made from income to be set aside for bill payments (i.e.

weekly or fortnightly)

This money would then be used to directly pay bills on a regular basis (i.e. monthly)

The show cards are provided below:

1.5 Sample

A full break down of the sample is provided in the appendix.

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Participant type Method Participant numbers

Unbanked participants Case study depth interviews 9 with a POCA

7 without a POCA

Recently banked participants Case study depth interviews 8

5+ years banked participants Focus groups 2 focus groups

A) Location

Locations were spread across the UK and incorporated a mix of urban and semi-rural/ rural

areas:

Manchester

Leeds

Bristol

Aberdeen

Aberystwyth

2 Research findings

The following chapters detail the findings of the research examining the appeal of the budget

account. These research findings draw on comparisons and findings from previous research

carried out by GfK NOP on behalf of HM Treasury exploring motivations and barriers to

becoming banked1. Where this is cited it is referred to as „previous HMT research‟.

3 Current financial management

Chapter summary

Two financial mindsets emerged across the research:

o Financial budgeters: those who had a structure in place for how and when their

money was spent. These participants sought control over their money, often due

to previous experiences of severe debt or financial concerns. Financial budgeters

all used a number of budgeting strategies and monitoring their financial situation

on a frequent basis.

o Financial jugglers: those who had a less structured approach to managing

finances. These participants often felt that they did not manage their money well

and tended to use fewer budgeting strategies when compared to financial

budgeters. This meant that they often juggled their finances and were often short

of money towards the end of the week or month.

The research explored ways in which participants currently managed their finances.

Behaviours cited by participants largely reflected those reported in the previous HMT research.

1http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/fitf_research_banked_fullreport.pdf

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However, in developing findings from the previous HMT research, and exploring in further

detail the way in which participants‟ managed their money; two financial mindsets and related

behaviours emerged:

Financial budgeters

Financial jugglers

These mindsets were not dependent on whether an individual was banked or unbanked or

whether they were employed or unemployed. These mindsets describe a set of attitudes and

behaviours in relation to finances which were observable regardless of whether or not the

individual was currently banked or employed.

3.1 Financial budgeters

„Financial budgeters‟ are those who have a structure in place for how and when their money is

spent. These participants know the exact cost of their routine outgoings, and have set days of

the week or month when specific bills are paid, or expenses such as supermarket shops are

paid for.

Financial budgeters seek control over their money and participants described current or past

circumstances that have resulted in a desire for financial control. Current circumstances

include the presence of children, and the associated importance of ensuring there was enough

money to buy essentials.

“I have to manage my money more now than before. I‟m a bit more careful, with kids

you‟ve got to be able to manage” (Female, recently banked, Bristol)

Past circumstances included experience of severe debt such as bankruptcy which had resulted

in a fear of debt and a desire to control their finances.

Financial budgeters all have some budgeting strategies in place. Front-loading bills, micro-

budgeting and monitoring are all common behaviours used by banked and unbanked

budgeters:

Front-loading bills: Those without a bank account front-load bills by paying them as soon

as they receive wages or benefits. This typically involves paying bills face-to-face at the

Post Office, Council or local pay point.

“I usually go and get everything the day I get my money so I know then it‟s been spent

on what it should be” (Male, unbanked, Leeds)

A number of participants with a bank account described a similar process where they

withdraw money from their bank account and immediately pay bills face-to-face. Those

who do use the full functionality of their bank account choose a direct debit date soon

after their money is paid into their bank account. Front-loading was considered a

budgeting strategy for ensuring that there is enough money to pay bills.

“I‟ll get paid and then have the money going out so I know what I‟ve got left after that”

(Male, 5+ years banked, Manchester)

“I try to have most things come out [on direct debit] when I get paid so it‟s all done.”

(Female, 5+ years banked, Manchester)

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Micro-budgeting: Those who use micro-budgeting described how their daily budgets are

set and each penny accounted for. These participants knew exactly how much money

was spent on bills and consumables and any changes to these (for example, increased

cost in food items) have a large impact on how they manage their money.

Monitoring: Monitoring is a strategy employed by financial budgeters who are keen to

check how much money they have, to ensure that they do not spend too much money, or

fail to keep enough money aside to last the period of time until they next receive benefits

or wages. For those without a bank account, monitoring tends to involve keeping a close

eye on how much money is in their purse, or setting money aside at home. For those

with an account, monitoring involves checking their bank balance.

“I like to go to the cash machine, see what‟s there and then I know” (Female, 5+ years

banked, Manchester)

“I check every couple of days to make sure the direct debits have been paid, there‟s still

enough money in there and I haven‟t gone crazy” (Female, 5+ years, Bristol)

“I‟ve got to be constantly checking to make sure the direct debits come off” (Female,

recently banked, Aberdeen)

Participants cited a number of ways of checking their balance including paper statements,

mini-statements from ATMs, requesting a statement face-to-face at the bank, and using

online banking.

3.2 Financial jugglers

„Financial jugglers‟ are those who have a less structured approach to managing finances when

compared to financial budgeters. By their own admission, financial jugglers felt that they did

not manage their finances very well and often struggled to implement and maintain budgeting

strategies.

“I wouldn‟t say I was best at managing money over the last couple of years” (Male,

recently banked, Leeds)

“I‟m not particularly good with arranging my finances because my ex wife did it all. I‟m

getting better at it.” (Male, recently banked, Bristol)

Payment of bills and household essentials tends to be more ad-hoc than for the financial

budgeters, and bill routines are far less ingrained. When compared to financial budgeters,

financial jugglers do less front-loading of bills or micro-budgeting, and tend to hope that there

is enough money to pay bills when needed. They also place less emphasis on monitoring their

financial situation.

“Last month I forgot [to check there was enough money for the phone company direct

debit], it went clean out of my head so I ended up with a £35 bank charge and the

phone company charged me £15 for a returned direct debit…it‟s just £50 down the

drain” (Female, recently banked, Aberdeen)

Resultantly, they often described juggling bill payments and many described „robbing Peter to

pay Paul‟.

Some financial jugglers noted that they find it difficult to budget their money over a period of

time, meaning that if a number of bills needed to be paid within a short period of time,

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finances are squeezed, and money becomes a problem during this time until further wages/

benefits are received.

“Then [paying lump sum bills means] I‟m totally broke…before that week comes I stock

up on the milk and the baby food, then I just have to buy the odd little bit then”

(Female, unbanked, Manchester)

Others discussed how they prioritised bills to decide which were essential for payment. For all

participants rent, electricity and gas are priority bills. After these have been paid, participants

often juggle other bills until they can afford to pay them. Whilst both financial jugglers and

financial budgeters are keen to avoid debt, across the research financial jugglers were more

likely to cite borrowing money from friends and family or, in some cases from doorstep

lenders.

4 Ideal financial management

Chapter summary

When thinking about how they could better manage their finances participants mentioned

ways to improve budgeting, access to their money and notifications of their financial

situation.

Budgeting: participants suggested that a system that provided a structured way for paying

and setting money aside for bills would be useful. In particular participants mentioned the

benefits of setting money aside and knowing that any money left was disposable income

that they could spend.

Access to money: banked participants noted that ideally, they would like to be able to

withdraw money from any ATM without a charge. Unbanked participants who currently

withdrew money at the post office counter noted that they would prefer, and find it easier

to withdraw money at an ATM particularly citing the convenience of 24-hour access to

money.

Notifications: banked participants noted that their budgeting would be improved if they

received notification from their bank to advise them when their account balance dropped

below an agreed sum. Key to this was the ability to avoid becoming overdrawn.

Participants were asked to think about how they would ideally like to manage their finances

and what would make managing their money easier. Across the research, ways to facilitate

budgeting emerged as a strong theme. The views detailed in this chapter of the report were

spontaneous, and it is interesting to consider the strong parallel between participant ideas and

the premise of the budget account.

4.1 Budgeting

When thinking about what would help them better manage their finances most participants

including those who had been banked for five or more years, those who were recently banked

and those who were unbanked, focussed on factors that would help them to budget their

money. Ideas raised by participants tended to centre on structured ways to pay bills, and

thereby to clarify how much disposable income would be left over. Participants envisaged that

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an arrangement allowing them to do this would mean that they could ensure that their bills

were paid, and that they would have clarity on how much disposable income was left over.

In considering how this type of arrangement would work, some participants envisaged that

bills would be automatically paid as soon as money was paid into their account.

“Everything would be paid as soon as it goes in and then you know what you‟ve got left”

(Male, unbanked, Bristol)

For banked participants (those who had been banked for five or more years and those who

were recently banked), this system was considered the same as front-loading direct debits – a

budgeting technique that many used themselves. However, a couple of recently banked

participants suggested that smaller amounts of money could be paid by direct debit on a

weekly basis to reflect the frequency of their benefit payments.

Participants felt that the key benefit of this type of arrangement is that they would know how

much disposable income they had to spend, without needing to worry about paying bills.

“It would be easier…then I know everything is getting paid…and it‟s gone, so I can‟t spend

it.” (Female, recently banked, Manchester)

One participant recalled a budget account that he had previously held with Lloyds bank. He

felt that this account had been very useful and was something that he would find useful

nowadays. The participant had closed the budget account, which he had held with his wife,

when they had divorced.

“When I got paid they would take money for the bills…and what was left in the current

account was or whatever…I thought that was a really good thing because once your

wages went in and you knew that was going to bills...and whatever was left you knew

was yours.” (Male, recently banked, Bristol)

Finally, a small number of participants noted that ideally they would like to be able to have

savings; a couple of participants suggested an account where savings were automatically

taken out of the money paid into their account to ensure that they set a small amount of

money aside on a regular basis.

4.2 Access and notifications

Banked participants and those who had been banked in the past were less likely to mention

ways in which access to money and notifications of their account balance could help them to

manage their finances when compared to those who were unbanked and had little previous

banking experience.

However, those who had been banked for five or more years felt that access to their money

would be easier if there were no charges at ATMs.

These participants noted that accessing money at ATMs was easier when compared to

accessing money at the Post Office; for these people, ideally they would like to be able to

access their money at an ATM although it should be noted that desire for this functionality did

not necessarily go hand-in-hand with the desire for a bank account.

“Do you know how jealous I am of people at the hole in the wall, I think „I wish I could do

that‟ ” (Female, unbanked, Manchester)

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Those who had been banked for five or more years and those who had recently become

banked noted that, in an ideal world, they would like to receive a notification from their bank

when the amount in their bank account balance dropped below an agreed sum. It was

suggested that this information be provided by mobile phone text message. It was envisaged

that this type of notification would help them manage their money, and avoid becoming

overdrawn and receiving bank charges for this.

5 Budget account appeal and drivers

Chapter summary

For most unbanked participants and some banked participants there was high appeal for

the budget account. The majority of participants envisaged that the budget account

would replace their existing account. Budget account appeal was strongest for those who

were unbanked with a POCA.

Budget account appeal was limited or low for: those who had a fluctuating income and

worried about regular payments; those operating within a deeply embedded cash culture;

and those who had a preference for a bank account.

Appeal was driven by reassurance and convenience.

o Reassurance was particularly appealing to financial jugglers for whom the budget

account provided a budgeting structure to ensure money was available to pay

bills.

o Convenience was particularly appealing to financial budgeters who were keen to

make payment of bills easier and more time efficient.

Additional benefits of the budget account included: the ability to create personal savings;

saving money on bills via automatic payments; and improving credit rating.

Following spontaneous discussion of suggestions around an „ideal‟ way to manage finances,

described in section 4, participants were presented with a budget account proposition for their

response. Across the research there was high appeal for the budget account.

“If that was in place and set up right now, I‟d actually go for that right now!” (Male,

unbanked, Leeds)

However, many participants were also keen to know more about the functionality and how the

budget account would work in practice.

Appeal for the budget account was prompted by two key drivers:

Reassurance

Convenience

These were strong drivers for both financial budgeters and financial jugglers. The appeal of

the budget account was reinforced for financial budgeters by a sense of familiarity around the

way that finances could be managed via a budget account, as it appeared to reflect and

support their current behaviour. The appeal of the budget account was reinforced for financial

jugglers as it appeared to provide a structure for budgeting that they currently lack. These

dimensions are explored below:

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5.1 Reassurance

Across the research, the appeal for the budget account was strongly driven by reassurance in

two respects:

1. Money would be set aside for bills to ensure there were adequate funds to pay these.

Both the current research and the previous HMT research revealed that participants

experience considerable worry and anxiety around finances, particularly in relation to covering

bill payments. Participants felt that the budget account could help alleviate this anxiety by

setting money aside automatically.

“This will help you budget. That‟s what you need to do when you‟re on a low income.

You can‟t go out spending money you haven‟t got” (Female, recently banked, Bristol)

2. The remaining balance would clarify the amount of disposable income available enabling

people to spend within their means.

“They‟re putting it aside so they‟ve already taken it out for your bills haven‟t they? So

that‟s good, and you know what‟s left, that‟s yours then.” (Female, recently banked,

Bristol)

“That‟s the best way, to have one [pot] that I can‟t touch and to have the other [pot] to

touch as and when I need it.” (Male, recently banked, Bristol)

For financial jugglers, the budget account provided a budgeting structure which was

something that they currently did not have, or found difficult to personally implement and

maintain. In this sense, the budgeting account would provide a structure is lacking at the

moment.

“It does sound good because it‟s giving you a way to budget…when I receive money I

know its going directly to certain companies that I‟ve prioritised” (Male, unbanked,

Leeds)

“I think it‟s a good idea because I‟m not very good at managing my money” (Male, 5+

years banked, Manchester)

Participants envisaged that having a budgeting structure in place would be reassuring as they

would know that money was set aside to ensure that bills were paid.

For financial jugglers, the budgeting structure that they would get access to through their

budget account would mean that they could accrue bill money on a weekly or fortnightly basis.

This was a desirable alternative to their current approach, which involved having to find a one-

off chunk of money to pay the bill every few weeks, a source of anxiety for many.

“It‟s budgeting it so it‟s not one big chunk [of money] out in one big hit” (Female,

unbanked, POCA, London)

“So there‟s a small amount coming out each week rather than a big amount. It would

be better for me because then I‟d know exactly how much a week is coming out of my

money” (Female, unbanked, POCA Aberystwyth)

16

Financial jugglers felt that a budget account would introduce an element of control to the

way that they managed their finances. These participants were very keen for money to be

automatically set aside for bills and felt that this would reduce the anxiety and stress they felt

in trying to ensure there was enough left over for bills.

“That‟s what I should really do but I always find that the money goes on something

else! Then I end up paying it off in one big lump and I think, oh, I‟m skint!...That‟s a

good idea because you‟re spreading your money out more…instead of paying everything

in one big lump…so basically each week you‟re going to have the same money and you

know where you‟re up to.” (Female, unbanked, Manchester)

“That would be the best way, for them to take it straight out and put it somewhere

else” (Male, recently banked, Bristol)

Overall reassurance was a particularly important driver for financial jugglers who noted that

they currently struggle to manage their finances and desired a budgeting structure that would

provide reassurance that bill payments would be made.

For financial budgeters, the budget account offered familiarity and reflected the way they

manage their money on a cash basis. This reinforced the appeal of the budget account;

participants felt comfortable in replicating their budgeting strategies in an account. In this

sense, the budget account would support their current budgeting behaviour.

“It principle that‟s doing what I would have to do myself anyway, but it takes away the

control over it…that to me is ideal” (Female, unbanked, POCA, London)

“That is what I‟m doing at the moment” (Male, unbanked, Bristol)

5.2 Convenience

Appeal of the budget account was also driven by convenience. This was strongly related to

automatic bill payments that negated the need for participants to pay bills face-to-face.

This was particularly salient for financial budgeters who have budgeting strategies in place

to manage bill payments, but were keen to make the process of paying the bills easier, and

more time efficient. They felt that a budget account would take responsibility for making the

bill payments, and reduce the stress and time they personally spent making sure that bills

were paid at the right place, on the right days.

Convenience was also appealing for financial jugglers although reassurance and the

provision of a budgeting structure held greater appeal to these participants.

5.3 Associated benefits

Whilst reassurance and convenience were the key drivers for budget account appeal,

participants did cite some additional associated benefits to a budget account. These were not

considered strong enough drivers in themselves to encourage someone to open a budget

account, but were considered to be potential positive consequences of having a budget

account.

5.3.1 Personal savings

Across the research, participants described different strategies for saving money. These

ranged from keeping ten pounds in their bank account each month, to asking friends or family

members to keep money in a safe place on their behalf. Some participants were saving

17

money for a specific occasion such as a family birthday or Christmas. Others liked to have a

financial buffer set aside in case an unexpected expense arose.

“I just try and squirrel away money here and there. I‟ve got a friend who quite often I‟ll

give money to…because if you‟ve got it in the bank or in the house you‟ll use it.”

(Female, recently banked, Aberdeen)

“I always try and leave something in the house because you never know what can

happen” (Male, unbanked, Leeds)

Across the research, most participants noted that as part of a budget account they would like

the option to create a specific „savings‟ pot where they could set aside an agreed amount of

money on a regular basis. Participants envisaged that this would be a more assured way of

saving money compared to ad hoc strategies that they currently use.

5.3.2 Bill savings

A small number of participants spontaneously mentioned being able to make savings on utility

bills by using automatic payments from a budget account. These participants tended to have

been banked in the past, or had noticed that they were paying a charge for using a payment

arrangement other than direct debit.

“I hate getting charged the £4 paper charge from Sky…you can‟t do direct debit from

the Post Office can you” (Female, unbanked, POCA, Aberystwyth)

“It‟s a good idea and it help me manage my money and it could be doing me a favour,

instead of having meters I could pay by bills and get a discount” (Female, recently

banked, Manchester)

These participants felt that saving on their bills would be a benefit of having a budget account,

although the reassurance and convenience described in sections 5.1 and 5.2 were cited as the

main drivers that would lead to participants actually opening a budget account. These

participants noted that they were wary of using direct debits functions via a high street bank

account as they strongly saw this as a route to debt. In particular participants mentioned

direct debit payments resulting in becoming overdrawn and receiving overdrawn charges.

Automatic payments via a budget account were perceptually viewed as different to direct

debits (see section 7.3) although participants who were aware of bills savings via direct debit

expected that these would be made available to them.

It should be noted that many unbanked participants were not aware of financial savings that

could be made by using direct debits to pay utility bills.

A couple of participants (unbanked and recently banked) noted that they could potentially

save money on purchases made by buying things online. These participants envisaged that a

budget account would provide a card that could be used to make online purchases.

“It‟s handy because you can often get bargains online that you can‟t get in the store”

(Female, recently banked, Aberdeen)

It should be noted that awareness of bills savings via direct debit was not dependent on

whether an individual was a financial budgeter or a financial juggler.

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5.3.3 Credit rating

A further couple of participants queried whether a budget account would improve their credit

rating. These participants had experienced debt in the past – in one case, a bankruptcy –

they were keen to improve their credit rating and hoped that a budget account would enable

them to do this.

“If there was a way it could improve credit rating then that would be good.” (Male,

unbanked, Leeds)

5.4 Strength of appeal

Across the research there was high appeal for a budget account. Those who expressed an

interest in a budget account envisaged that it would be their sole account and would replace

the account (bank or POCA) that they currently use. Only a couple of participants noted that

they would use their budget account in addition to their current account. One of these

participants had a POCA and one had a bank account. Both of these participants envisaged

that they would use a budget account as a joint account with their partner specifically to

manage bills.

Whilst appealing factors differed by financial mindset (as discussed above), current financial

management circumstances also affected an individual‟s interest in a budget account:

Unbanked without a POCA. There was mixed appeal within this group. Those who

operated within an deeply embedded cash culture were less likely to look favourably at the

idea of a budget account.

Unbanked with a POCA. Most participants with a POCA showed interest in a budget

account and envisaged that they would be likely to open one if given the opportunity in

the future. Only a couple of participants within this group rejected the idea of a budget

account. These participants aspired to a bank account, credit and other financial

products.

Banked. Again there was mixed appeal within this group. Whilst some participants felt

that a budget account would help manage their finances others felt that it did not offer

them anything different to their current bank account.

Instances of limited or low appeal are discussed further below.

5.4.1 Limited appeal

The budget account had limited appeal for those with a fluctuating income. Across the

research a couple of participants felt that they were in this position. These participants were

unable to guarantee a fixed income into a budget account and therefore queried the extent to

which they would be able to use the functionalities offered with a budget account. In

particular, they felt that they would not be able to guarantee sufficient funds to be set aside

regular bill payments.

“If money specifically set aside before my next JSA payment comes in it wouldn‟t give

me that little bit of flexibility that I need to juggle sometimes. Quite like the idea but

with the way my current personal circumstances are it wouldn‟t quite work – it wouldn‟t

give me the flexibility” (Male, recently banked, London)

“My general position is that standing orders are good, on the proviso that money is

constantly going into the account.” (Male, unbanked, Leeds)

19

These participants were used to juggling finances to make ends meet – especially on weeks

when their income was lower than usual – and felt that the budget account would not provide

sufficient flexibility to allow this. It should be noted that the budget account was presented to

participants as an account from which bill payments were made on a regular basis. For those

with a fluctuating income, the regularity of payments was of key concern suggesting that a

more flexible arrangement would be better suited to these participants.

5.4.2 Low appeal

The budget account had low appeal for two groups of people:

Those with a deeply embedded preference for cash.

Those with a preference for a bank account.

Across the research four participants cited a preference for managing their finances via cash,

and 11 participants noted a preference for managing finances via a bank account2. Both of

these groups felt that the budget account would not provide any specific benefits to them, and

would not improve the way in which they managed their finances.

A) Preference for cash

A small number of unbanked participants resisted the idea of a budget account noting that

they felt more comfortable managing their finances in cash. These participants had typically

been operating with cash for a long period of time and were deeply embedded in a cash

culture. For example, one participant had been operating with cash for more than forty years

as he had always been paid cash in hand by the same employer. Using cash was an

entrenched behaviour for this participant and he could not identify any compelling reason why

managing via a budget account would be beneficial. Other participants cited similar rationale,

and noted that they had successfully managed their finances with cash and resultantly saw no

benefit to changing this.

“I still prefer cash. I know where I am with cash” (Female, recently banked, Aberdeen)

Cash was also preferred by those who had had a negative experience with a bank account in

the past. These experiences often involved severe debt or bankruptcy, which had resulted in

a mistrust of banking and a fear of debt. These negative experiences were often backed up

by negative reports and stories of debt from friends and family, and the recent news reports

concerning the recession had furthered concerns regarding banking.

“I think I would start fretting…I can take away that worry by doing it myself.” (Male,

unbanked, Bristol)

B) Preference for bank account

Some of those who had been banked for five years or more felt that a budget account did not

offer them anything different or beneficial over and above a bank account. These participants

were comfortable in managing their finances via a bank account, and did not require the

budgeting functionalities offered by the budget account. Some felt that a budget account

2 In interpreting these numbers it is important to note that this research was qualitative in nature, and by definition included a small sample size for in-depth study. These numbers should therefore not be seen as in any way representative of the population as a whole, or of the unbanked population. They are provided in order to give an indicative feel for the perceived relevance of a budget account among the sample interviewed.

20

would add a layer of complexity to how they currently managed their finances by adding an

“unnecessary middle man” (Female, 5+ years banked, Manchester).

Preference for a bank account was also cited by a couple of unbanked participants who

aspired to becoming banked in the future. These participants had been banked in the past,

and hoped to become banked in the future as and when they became more financially stable.

These participants aspired to using direct debits, a debit card and overdraft, and they

preferred these features over and above those offered by a budget account.

“A bank is the best place…you get all your direct debits, you know that‟s going in and

what‟s going out” (Female, unbanked, Manchester)

6 Functionality

Chapter summary

Participants envisaged that wages/ benefits would be paid directly into the budget account

but also wanted to be able to pay in cash and cheques.

Participants suggested that they would agree with the account provider the amount of

money that would be set aside. They envisaged using this function for core priority bills –

the number of these differed across participants but typically included rent, council tax,

electricity and gas.

Participants were keen to involve an element of saving via the budget account either by

setting money aside in a specific „savings pot‟ or, by over-paying on bill payments.

Participants queried the level of flexibility that would be available for accessing money set

aside for bills. Some sought clarification that this would be easily accessible, and were

unlikely to consider a budget account without this reassurance. However, others – often

financial jugglers – felt that limited or time-sensitive access would be preferable to ensure

that money was safeguarded for bills.

For many unbanked participants automatic payments were not perceptually aligned with

direct debits; they were seen as a different way of making bill payments. This meant that

unbanked participants did not cite barriers to using these, such as fear of debt, which are

often raised in relation to direct debits.

Participant wanted access to left over money via ATMs.

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This chapter explores participants‟ attitudes towards the budget account functionality and is

divided into the four key elements of the budget account:

Money paid into the account

Money set aside for bills

Automatic bill payment

Rest of the money

Attitudes and preferences for functionality within each of these elements of the budget

account are detailed below.

6.1 Money paid into account

Participants sought flexibility in how money could be paid into a budget account. In addition

to being able to have wages and/ or benefits paid in directly, participants also wanted to be

able to pay in cash and cheques. Paying in cash was of particular importance, as participants

noted that if they did not have enough money set aside for bills one month, they would want

to be able to top up their balance using cash.

6.2 Money set aside for bills

As discussed in chapter 6, setting money aside to ensure that there are funds for bill

payments was a strong driver for participants, as they envisaged that this would make

budgeting and managing finances easier.

“I only have meters because I‟m rubbish with bills so if they were taking it for me then

that would be better” (Female, recently banked, Manchester)

The number of bills that participants envisaged setting money aside for varied from person to

person. Most participants suggested setting money aside for core priority bills which usually

included one or more of the following: rent; council tax; electricity; and gas. Participants did

not envisage that they would need to set money aside for food and other consumables such

as cigarettes. They felt that these would be paid for out of the „money left over‟ and tended

to be items that were paid for on an ad-hoc basis as opposed to on a regular calendar date.

However, there was no discernable pattern regarding how many or which bills participants

envisaged they would manage via a budget account. This decision was individualised, and

often depended on how bills were currently budgeted for, paid and prioritised. During the

research participants were asked to complete an exercise asking them to think about their

regular expenditures and consider which of these they would transfer to a budget account.

An example is given below.

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Money set aside for bills: Financial budgeter example

This participant was a single parent with one child living at home. She was unbanked with a

POCA and her source of income was benefits. After considering her regular expenditures she

felt that the expenditures she would transfer to a budget account were: water rates

(including rent); BT telephone and internet connection; television licence and Sky television.

She felt that this would make managing and budgeting for these bills easier. She currently

paid for gas and electricity by card. Whilst she felt that she would like to be able to set

money aside for these in a budget account, she envisaged that instead of using an automatic

payment, she would be able to withdraw money from the budget account to continue using

her cards. She felt very comfortable and familiar with using gas and electric card and topped

these up when she did her routine food shop. She did not see any benefit to changing this

current arrangement. She did not think that setting money aside for food and cigarettes was

necessary as she would budget for these with the money left over once bill money had been

subtracted. Similarly, she felt that she would budget for mobile phone credit with her

disposable income and noted that currently she only topped up her mobile phone if there

was any spare cash left at the end of the month.

Participants envisaged that they would agree with the account provider how much money to

set aside each week or fortnight for each bill. Budget account set up is further detailed in

chapter 9. Many noted that they would choose to slightly over-pay bills where possible by

rounding up required amounts by fifty pence or a few pounds. They felt that this would be a

way for them to save money and create a financial buffer.

23

In addition to putting money aside for bills, participants were keen to set money aside as

savings for emergencies or occasions such as holidays, a large purchase or family events.

“Maybe £5 a month into savings deducted, at least then you are trying to save a little bit”

(Female, unbanked, POCA, Aberystwyth)

“In my head I think I‟d love to be able to save for a holiday and it doesn‟t happen…but if

it was taken for me…I‟ve got it, and it would happen” (Female, 5+ years banked, Bristol)

When it came to setting money aside for bills, participants were keen to know what conditions

would be in place for changing bill amounts, bill payment dates or accessing money that had

already been set aside for bills. Whilst participants were keen to budget for bills via a budget

account, they were concerned that this arrangement would lack flexibility. Their key concern

was regarding access to bill money. Those on very low incomes, with no or little financial

support from family or friends, often worried about how they would cope in a financial

emergency. They sought reassurance that they would be able to access the bill money if an

unexpected and urgent expense arose.

“I would also want the ability to be able to override in an emergency” (Female, 5+

years banked, Bristol)

For some participants access to this money was important, and they felt that they would be

less favourable towards a budget account if they were not provided with reassurances that

they could access this money in an emergency. However, some participants noted the

positive features of not having access to this money. These participants tended to be

financial jugglers who welcomed a system that ensured money was ring-fenced and

“untouchable”. Some participants suggested that a notification period should be put in place

for accessing bill money. These participants admitted that they had previously spent saved

money and regretted this, so would appreciate a cooling off period before having access to

saved money.

6.3 Automatic bill payments

As discussed in chapter 6, the convenience of automatic bill payments was a strong driver for

participants who sought simpler and easier ways to manage and pay bills.

Across the research there was a great deal of discussion regarding the differences between

automatic payments and direct debits. Some participants – particularly those who had been

banked for five or more years – felt that automatic payments were no different to direct

debits. A couple of unbanked participants, who had not been banked in the past had a vague

knowledge of direct debits and standing orders, although were unable to comment on

similarities or differences with automatic payments.

The previous HMT research found that many people had a fear of direct debits and associated

them with risk of getting into debt. In particular, previous HMT research found that people

were concerned that direct debits would come out of their bank accounts when there were

insufficient funds which would result in charges for using an overdraft. These fears were also

raised in this research.

“You might be £1 short and then you get charged £24” (Male, recently banked, Bristol)

However, for many, direct debits were not perceptually aligned with automatic payments.

Automatic payments were seen as different; participants felt that automatic payments offered

a greater degree of control over payment of bills. With direct debits, participants felt that the

24

company was in control of the arrangement, as they approached the bank account for bill

money. However, with automatic payments participants felt that they themselves and the

account provider were in control, and approached the company to pay the bill on an agreed

date.

“There‟s no one going into your account and taking anything. It‟s the ...[provider]...

itself that are splitting your money up” (Male, 5+ years banked, Manchester)

Further to this, participants felt more reassured about automatic payments because the

money was budgeted and set aside to pay these without risk of these payments leading to

debt.

Whilst participants were reassured that a budget account would ensure sufficient funds were

set aside to make bill payments, during the research they were asked to consider what would

happen if on occasion they had insufficient funds. Participants generated a number of ideas

for arrangements they envisaged could be put in place if this situation arose. Firstly,

participants noted that there would be two ways in which they could find out about lack of

funds to pay for a bill:

1. Receive the bill themselves and check their account to ensure adequate funds.

2. Receive a warning from the account provider to let them know that there are insufficient

funds. Participants suggested that this could be communicated by mobile phone text

message or email, and would need to be conveyed a few days before the bill was due.

Once aware of the situation participants suggested that they could transfer money from the

disposable income element of their budget account to the bill, pay the required cash directly in

to their account or ask for surplus funds from other bill „pots‟ to be transferred to the relevant

bill. A couple of participants suggested that they be given the opportunity to identify priority

bills that should be paid first, if there was a month when insufficient funds were available.

They envisaged that these priority bills would be agreed when the budget account was set up.

“I‟d want to prioritise them, my rent, my council tax, my TV licence, gas, electric, they

come first. My phone which is effect a little bit of a luxury if that‟s something falls by

the wayside this month so be it. So long as they were prioritised would be quite

comfortable with that” (Male, recently banked, Leeds)

Across the research it was clear that an important element of automatic payments was

providing people with confirmation that bills had been paid. Participants envisaged that they

would be able to check this via account statements, but some suggested receiving notification

via mobile phone text message or email.

6.4 Rest of the money

Participants responded favourably towards the idea that a budget account would allow them

to be aware of exactly how much money they had left after setting money aside for bills.

They felt that this would help them to budget and manage their disposable income. Access to

this disposable income was considered key..

All participants voiced a preference for accessing money at an ATM. For those who had been

banked for five or more years, and those recently banked, ATM access was considered a basic

requirement for having an account.

25

“This would be replacing my bank account so I would want all the same facilities as I

was getting my current account.” (Female, 5+ years banked, Bristol)

For those who were currently unbanked, the idea of accessing money at an ATM was very

appealing.

“I‟d like to be able…to use the ATM machines because if you don‟t get to the Post Office

at a certain time you‟ve got to wait until the next day and then you could have no

money for one day” (Female, unbanked, POCA, Aberystwyth)

Across the research it was clear that ATM access, and resultantly 24-hour access to

disposable income was considered a key element of the budget account. Participants

envisaged and suggested that ATM access be 24-hour and felt that this would be convenient

and a positive difference to how money could currently be accessed with a POCA. In

addition to this, some participants said that they would like to be able to use a card to make

purchases in shops and online. This mirrors findings from the previous HMT research, which

found that the ability to make card payments would be beneficial for those wishing to make

micro-transactions, and those with security concerns related to carrying cash.

Participants were asked to comment on the idea of pre-payment cards. These were

positively received by unbanked participants who envisaged they could be used to make

purchases in shops instead of using cash.

“Instead of having cash in your purse you could just have that…that‟s a good idea”

(Female, unbanked, Manchester)

However, banked participants voiced a preference for a debit card as something that they

already used with their bank account.

Across the research, the idea of having an overdraft attached to the budget account was

spontaneously mentioned by participants. In line with previous HMT research, nearly all

unbanked participants were wary of overdrafts and sought reassurances that an overdraft

would not be provided with a budget account.

“No debt at all should be allowed to occur on the account as otherwise all you‟re going

to do is get deeper, deeper, and deeper [into debt].” (Male, unbanked, Leeds)

For these participants, overdrafts were strongly associated with debt and were often cited as

the cause of debt in the past. This concern was also raised by some recently banked

participants, and some who had been banked for five or more years.

“I haven‟t got an overdraft. I‟m still a little bit of paranoia about leaving money in the

bank in case someone takes out a standing order” (Male, recently banked, Bristol)

“I budget as it is without having to worry about going into an overdraft and worry about

how I go about paying it back” (Female, 5+ years banked, Bristol)

However, some banked participants were reliant on their overdraft and would find it difficult to

use a budget account if it did not also provide an overdraft.

“You have to [use the overdraft] because the money that you get doesn‟t go that far.”

(Female, 5+ years banked, Manchester)

These participants saw their overdraft as a “safety net”. One participant described how

important her ten pound overdraft was, and how she found that she often needed to “live in

26

the ten pounds” to make ends meet each month. These participants were reluctant to

consider giving up their overdraft.

7 Channels for account set-up and management

Chapter summary

When thinking about setting up a budget account participants envisaged this would

involve an element of face-to-face interaction. Financial budgeters were most likely to

comment that they would feel comfortable in setting up an account and identify amounts

of money to be set aside for bills. However, financial jugglers were more likely to note

that they would require help in deciding these amounts and in generating a budget.

These participants suggested that the account set up process involve an element of

advice.

It was suggested that notifications of when bills had been paid and warnings for when

there were insufficient funds in the budget account be provided via mobile phone text or

email.

Participants sought easy ways to monitor their budget account including: mobile phone

text updates; postal statements; mini-statements from ATMs; online tool.

When considering how they would best like to communicate with the account provider

regarding a budget account, participants tended to talk about two key types of

communication:

1. Account set up

2. Ongoing account management

Preferences for channels differed across these and are discussed below.

7.1 Account set up

Most participants envisaged that setting up a budget account would involve a face-to-face

interaction. For some, this was viewed as a short meeting to confirm the functions and bill

payments with the account provider. These participants envisaged that in advance of this

meeting they would complete a document detailing how much they wanted to be set aside for

bills and when bills should be automatically paid. Across the research, financial budgeters

were most likely to envisage and feel comfortable with this process for setting up a budget

account. They felt that they had a good understanding of how much would need to be set

aside for different bills.

Other participants – typically financial jugglers – envisaged that they would receive some

advice when deciding how much money to set aside for bills, and felt that they would require

this. As discussed earlier, financial jugglers found it difficult to budget and resultantly sought

reassurance that they were setting the correct amounts of money aside for different bills.

“I would want to see an advisor and chat to them and I would want reassuring that the

amount that I‟ve told them is realistic” (Female, 5+ years banked, Bristol).

27

7.2 Ongoing account management

7.2.1 Amendments

Participants envisaged that they would make any amendments required such as change of bill

date or change of amount set aside for bill money, either face-to-face or by telephone. It

was agreed that discussing finances was a sensitive and private matter.

“I wouldn‟t want to be stood there discussing my account with wee Jeannie from next

door stood there doing her shopping!” (Female, recently banked, Aberdeen)

7.2.2 Notifications

Participants felt that receiving notifications to confirm that bills had been paid was important in

providing reassurance. It was suggested that these could be provided by mobile phone text

message or email.

Text message and email were also suggested as preferred channels for warnings that there

were insufficient funds in the budget account.

7.2.3 Monitoring

The previous HMT research found that monitoring finances was important to participants.

This research found that in particular, financial budgeters currently monitor their finances

on a frequent basis.

Easy and simple monitoring of a budget account was seen as very important by all

participants. Some participants suggested that they be sent a record of their balance on a

frequent basis. Suggestions included weekly updates by text message, monthly postal

statements, mini-statements from an ATM and 24-hour access to an online balance.

“[Online] would be good because you can sit there and go through it in your own time.”

(Male, recently banked, Bristol)

Participants noted that detailed balances should be made available by post and online. They

envisaged that this would detail exactly how much was set aside for each bill, and how much

disposable income was available. Some likened this to a “weekly calendar online tool” where

they could track how much was going in and out of their budget account. These participants

liked the idea of monitoring their money, and being able to see an overview of how their

money was being budgeted and spent.

“It‟s like a budgeting calculator. It‟s quite handy you can physically see what going out”

(Male, recently banked, Leeds)

8 Budget account fee

Chapter summary

The majority of participants who were interested in a budget account felt that a small fee

would be acceptable.

Whilst there was little consistency regarding the amount of structure of the fee most

mentioned a regular account fee (weekly or monthly).

28

Participants were asked for their views on paying for a budget account. Whilst initially most

participants were reluctant to consider a budget account fee, after consideration of the

benefits that a budget account offered, the majority of participants felt that a small fee would

be acceptable. The more appealing participants found the account, the more likely they were

to consider paying a fee.

“Even if I was working, for someone to come along and sort all my money into pots I‟d

happily pay them!” (Male, recently banked, Bristol)

A fee was also considered acceptable by those who currently paid a fee for their bank account.

Ideas for the structure and amount of fee varied across participants. There was little

consistency in suggestions, although most suggested the fee should be small. No participants

mentioned basing fees on differing levels of service.

The range of suggestions included:

£1 weekly fee

50p/ £2/ £5 monthly fee

£25 set up fee

£20 annual fee

£1 per cheque paid in to the account/ per automatic payment

The idea of a fee was rejected by the following participants;3

Those for whom the account had limited or low appeal. This included four participants

who preferred to manage their finances via cash, and two participants who felt that their

fluctuating income limited their ability to use a budget account which set aside money on

a regular basis.

Eleven banked participants who felt the budget account did not offer them any additional

benefits when compared to their bank account for which there was no fee.

Those who felt they were on a very low income, and could not afford to pay for a fee.

One unbanked participant suggested that the budget account fee be structured to take

into account peoples‟ incomes; this participant noted that he would be more likely to

consider paying a small fee if he were employed.

“As much free as possible on a low income” (Male, unbanked, Leeds)

“I‟m on my own with my son. There‟s only one wage coming in along with my working

tax credit and my child benefit, and I consider myself to be on a low income, so I would

not pay for an account.” (Female, 5+ years banked, Bristol)

3 please note that where numbers are provided it is important to note that this research was qualitative in nature, and

by definition included a small sample size for in-depth study. These numbers should therefore not be seen as

in any way representative of the population as a whole, or of the unbanked population. They are provided in

order to give an indicative feel for the perceived relevance of a budget account among the sample

interviewed)

29

“If it cost me money there is no way I would take that account” (Male, unbanked, Bristol)

9 Conclusions and recommendations

Overall there is a genuine appetite for a budget account, with strongest appeal amongst

those who are currently unbanked but open to alternative ways of managing their finances

including:

Financial budgeters who seek a more convenient and less time-consuming way to

manage finances.

Financial jugglers who currently lack budgeting skills and struggle with finances.

The research indicates that these people were very likely to take-up a budget account. There

is also appeal among those who are recently banked and have been banked for five or more

years. Again, this includes a mix of financial budgeters and financial jugglers. Here, a budget

account is seen to offer more than a bank account.

There is low appeal among those who operate within a deeply embedded cash culture.

These people are resistant to any form of banking. Unable to identify any benefits of becoming

banked, these people are likely to be extremely difficult to move into a budget account, or any

other form of banking.

There is also low appeal among those who show a preference for their current bank account,

or those who aspire to a bank account. In particular these people access, or aspire to access

credit such as overdrafts and are unlikely to consider an account that does not offer this

function.

Finally, there is limited appeal for a budget account where an individual has a fluctuating

income. For these people there is concern about having the income to make regular

payments. However, the research indicates that these people may be interested in a budget

account that offers flexibility in payments to suit their fluctuating income.

The previous HMT research found that there is a general resistance to becoming banked.

Unbanked participants in this research were often reticent to consider becoming banked as

they associated being banked with debt and access to credit. For many, this acted as a core

barrier to becoming banked which suggests that participants would be less likely to look

favourably at a budget account should it be positioned within a high street bank.

Fear of debt, negative previous experience and a perceived lack of benefit meant that those

who had become banked had been prompted to do so via a third party. Policis research4 also

found that account opening is driven primarily by third party requirements (e.g. employers).

In stark contrast, there is little resistance to the idea of getting a budget account. It is clear

that the budget account is not perceptually aligned with a bank account which removes a

number of barriers preventing people from becoming banked. In particular, previous negative

experiences of banking do not seem to overly deter people from a budget account.

4 These conclusions draw on findings from research carried out by Policis: Realising banking inclusion: the

achievements and challenges (January 2011).

30

Furthermore, it is clear that this differentiation between a bank account and a budget

account is central to the budget account appeal. The key areas of differentiation are:

This research indicates that people will be less likely to consider a budget account if it

were to be provided by a high street bank.

The budget account feels like a tailored account; ‘an account that will help me

manage my finances’. The previous HMT research found that unbanked people felt

that bank accounts were not aimed at them or were unlikely to benefit their current

circumstances. This view is reinforced by the Policis research which found that 26% of

those on the lowest incomes felt that banking had made little difference to their lives and

finances. However, it is clear that the budget account offers people something different

and beyond the functionality of a bank account. The research indicates that people find it

easy to identify how a budget account will benefit their personal financial management

including: the provision of a budgeting structure; reassurance that money is set aside to

pay bills; bills paid automatically. A key element of the tailored feel of the budget account

is that it reflects the short-term view of finances that people have. Where money is

received weekly or fortnightly, money is budgeted weekly or fortnightly and the budget

account supports this.

As people are able to identify the benefits of a budget account there is tolerance for a small

account fee.

An additional element of differentiation between a bank account and budget account is the

appeal of the account functionality. The previous HMT research found that bank account

functionalities (e.g. direct debits, ATM access) are not motivating factors to becoming banked.

However, by contrast the functionalities of the budget account are considered motivating. The

Policis research found that 53% of those on the lowest incomes with a bank account continue

to manage finances via cash and therefore use limited bank account functions. However, the

budget account functions are central to the appeal of the budget account. Of particular

interest is the appeal of automatic payments. Experiences of direct debits and related

penalty charges were explored in the Policis research. This found that around half of the

newly banked had been exposed to penalty fees, and one in three of these had incurred more

than five charges within the previous year. This supports our previous HMT research which

found that experiences of penalty charges often led to a fear of penalty fees which constituted

a key barrier to becoming banked. The research suggests that whilst direct debits often

strongly deter people from becoming banked, automatic payments are considered a

motivating factor to becoming banked. Direct debits and automatic payments are seen as

different functions and this differentiation is key to the budget account appeal. Whilst direct

debits are associated with penalty charges and debt, automatic payments are associated with

convenience; a convenient way for bills to be paid.

It is clear that the motivating benefits for the budget account are reassurance that finances

will be budgeted, and convenience in paying bills. Personal savings are also mentioned.

However, it is interesting to note that savings on bills is not cited as a key benefit of a

budget account. This is likely to be partly due to low awareness of potential bill savings but

also suggests that bill savings are not a top priority. This is supported by Policis research

which found that interest in saving on bills was low and unimportant as a motivator in

becoming banked. It also found that savings on utility payments were reduced as a result of

penalty charges resulting from direct debits and that those in the lowest income quintile

suffered a small net loss. This suggests that savings on bills is unlikely to motivate people to

take-up a budget account.

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The budget account will provide a budgeting structure and payment process that will help

people manage their finances. The research indicates that the budget account has the

potential to provide greater financial stability to people and help individuals develop their

budgeting, financial management skills and encourage take-up of personal savings. In the

long term this may increase financial confidence and management skills and help tackle the

„revolving door‟ issue identified by Policis where banked people become unbanked following

problems in managing finances via a bank account.

The research suggests that there are different requirements for a budget account set-up

process, and that a high importance is placed on ease of monitoring and managing the budget

account. People expect that the set-up process will involve an element of face-to-face

interaction:

For those more confident about their budgeting capabilities (typically financial

budgeters), there is an expectation that this interaction will double-check and confirm

when and how much money is budgeted and set aside for regular payments.

For those less confident about their budgeting capabilities (typically financial jugglers),

there is an expectation that this interaction will offer a more advisory role and help plan

and identify a budgeting structure.

It is clear that people desire easy access to information regarding the budget account and

strong preferences were indicated for: online management tool, text messages and ATM

statements.

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10 Appendix

10.1 Sample

Unbanked:

England

Manchester

England

Leeds

England

Bristol

Wales

Colwyn Bay

Scotland

Aberdeen

2 x with POCA

1 x without

POCA

2 x with POCA

1 x without

POCA

2 x with POCA

1 x without

POCA

2 x with POCA

1 x without

POCA

2 x with POCA

1 x without

POCA

Across the sample:

Annual household income of less than £25,000

8 x male and 8 x female, spread of ages 18+, included single headed households, lone

parents, disabled people, 3 x people from ethnic minority groups

Mix of those in receipt of benefits, unemployed, living in socially rented accommodation

Some banked in the past

Recently banked:

England

Manchester

England

Leeds

England

Bristol

Wales

Colwyn Bay

Scotland

Aberdeen

1 x recently

banked

1 x recently

banked

2 x recently

banked

2 x recently

banked

2 x recently

banked

Across the sample:

Annual household income of less than £25,000

8 x male and 8 x female, spread of ages 18+, included single headed households, lone parents, disabled people, 2 x people from ethnic minority groups

Mix of those in receipt of benefits, unemployed, living in socially rented accommodation

Some banked in the past, all have been unbanked for at least 18months/ 2 years before

becoming banked

33

5+ years banked:

England

Manchester

England

Leeds

England

Bristol

Wales

Colwyn Bay

Scotland

Aberdeen

1 x group

Working

1 x group non-

working

Across the sample:

4 x annual household income of less than £15,000 and 4 x annual household income of £15,000-£25,000 per group

4 x male, 4 x female per group, 2 x 25-39 years, 2 x 30-45 years, 2 x 40-64 years, 2 x 65+ years per group

All banked for at least 5 years, mix of those on benefits and in socially rented

accommodation

34