The report, Beyond the Buffer, shows one in five (20%) people in low- and moderate-income households could be in a position to grow their savings through investing, if there was a targeted effort to build confidence, simplify decisions, improve advice pathways and make investing feel relevant and achievable.
The research, supported by The BlackRock Foundation, comes as the UK Government looks at a range of measures to encourage savers to invest and boost growth at household and national level.
New guidelines and evolving investor demographics
The analysis finds that one in five (20%) working age adults in low- and moderate-income households had more than £2,000 in cash savings and had no high-cost credit or arrears in May 2024, but they were not investing.
This suggests significant untapped potential for investment, which could deliver higher long-term returns and help people reach their financial goals sooner.
While traditional industry guidelines recommend having at least £10,000 in cash savings before investing, research shows that holding £2,000 in cash or ‘emergency’ savings is associated with a significantly lower risk of falling into debt – making it a useful indicator of short-term financial resilience, especially when combined with having no high-cost credit or arrears. With this essential foundation in place, individuals may be able to begin investing sustainable amounts without undermining their financial security – particularly if they continue to save into cash products at the same time.
This approach could enable more people to start investing earlier, achieve higher returns on their savings, protect purchasing power against inflation and build wealth over time.
The report highlights an opportunity to build on current momentum, as participation in financial markets among those living in low- and moderate-income households has risen in recent years. In May 2024, just over one in five (21%) non-retired adults aged 25 to 64 in low- and moderate-income households held financial investments outside pensions, rising from 14% in January 2017.
Participation does remain varied across gender and age groups, though. For instance, investment rates among men have increased from 16% in 2017 to 26% in 2024, while rates among women have remained largely unchanged, widening the gender participation gap.
Younger adults have become significantly more engaged, with participation among 25-34-year-olds more than tripling between 2017 and 2024, from 6% to 20%. This growth may reflect the rise of online investment content and ‘finfluencers’, particularly on platforms such as YouTube, used by 29% of young adults seeking investment information.
Growing an emergency savings buffer remains the focus for many
Despite this growth, for most people in low- and moderate-income households, the priority remains building an adequate emergency savings buffer. Around 62% of non-investors – equivalent to 5.5 million people – had less than £2,000 in cash savings, leaving them without a sufficient buffer to absorb unexpected costs. For those who do have the financial foundation to invest but aren’t yet doing so, the barriers are rarely financial.
Behavioural and informational challenges play an important role, including:
risk aversion (32% of non-investors with at least £2,000 in savings were unwilling to take any risk with their money, compared with 11% of investors)
low confidence (71% of non-investors said they needed additional support before investing, compared with 41% of investors)
misunderstanding inflation risk (62% of investors recognised that cash loses value in real terms, compared with 47% of non-investors; 19% said they “don’t know”)
lower engagement with or access to financial advice (16% of investors in low- and moderate-income households received advice in the past year, compared with 4% of non-investors).
The research also highlights a minority of people living in low- and moderate- income households who are already investing but could be exposed because they lack a substantial cash buffer. Over a third (35%) of investors living in low- and moderate-income households had less than £2,000 in cash savings – equivalent to around 800,000 people. These individuals are less likely to be able to absorb losses without impacts to their lifestyle and wellbeing.
Molly Broome, Research and Policy Lead at Nest Insight, commented: “While building a buffer should remain the priority for most people in low- and moderate-income households, many could be supported to start investing and make their money work harder for them.
Adjusting traditional industry guidelines of having at least £10,000 in cash savings before investing could help more people start investing sooner and build wealth over time. But increasing participation will require more than improving financial capacity alone – it will take a concerted effort to build confidence, reduce complexity, provide advice pathways and make investing feel relevant and achievable.”
Sarah Melvin, Head of UK & Europe Client Business and Board Member of The BlackRock Foundation, added: “The findings of this report are very encouraging for people looking to build long term financial stability. Whilst building a safety net of emergency savings should come first, participation in capital markets is crucial to building financial well-being and prosperity. These findings show that with the right support, investing can become a realistic option for millions of people across the UK as they plan for their future.”
|
