Jam Jar Bank Accounts

David Simpson Excerpts

Tuesday 28th February 2012 Westminster Hall

[Damian Hinds]

My hon. Friend’s point is, as ever, apt and to the point. She could also have mentioned the stress that debt and trying to manage one’s finances can bring to families, which is one of the key factors in family breakdown.

To address those points—at least in part—and a few other points, we have jam jar accounts. They mimic the jam jars on the windowsill; that is the whole point of such accounts. Louise Savell of Social Finance has identified three core features. First, when someone’s wages come in, the money is automatically distributed among different pots within the bank account—for rent, household bills, spending money, savings and so on. Secondly, the person would receive a low balance alert by text, if there is a danger of that person failing to meet one of their bills from the bills account. Thirdly, if the person does not act on that for whatever reason, there would be an auto-sweep from savings into the bill-paying account in order to avoid penalty charges or failing to make the payment.

There are a number of questions about product design, which can be done in different ways. One big debate is about budgeting support, which could accompany the accounts. Comprehensive budgeting support—helping people to decide how much goes into each pot and how and when to redistribute—would be a great bonus, but that is quite costly. The issue should have a separate debate, because we can have a lot of the benefits from jam jar accounts without fully comprehensive budgeting support, and we can have a lot of great benefits from fully comprehensive budgeting support without jam jar accounts.

A second question about product design is how easy we make it to raid a savings account. Jam jar accounts are in many ways a method for one to impose discipline on oneself. A customer might decide that it would be good to impose further discipline and say, “If I want to move money out of the savings account into the spending account, I should have to do something actively. Ultimately, it is my choice because it is my money, but I will make myself ask for it in writing or by e-mail.”

[David Simpson (Upper Bann) (DUP)]

Does the hon. Gentleman agree that more attention and help need to be given to those of a certain age? They could find bank accounts hard to deal with—it is taxing, as he has suggested—and they like to see what they have and manage it in that way. More help is needed for the senior citizens of our country.

[Damian Hinds]

The hon. Gentleman is absolutely correct. There is a generation that is more comfortable with managing such matters online, if they have access to a desktop personal computer, or, for those who do not have that, through smart phones, mobile phones and auto-voice recognition. However, there is a cadre of people for whom that is less appropriate.

The third question on product design is how to market such accounts, by whom and to whom.

Why would we want a great increase in jam jar banking? First, it would reduce the extent to which people trip into debt. Secondly, the poorest would pay less, both directly, through lower bank charges; and indirectly, because service providers would have a lower average cost of collection. Therefore, the poverty premium, as highlighted by Save the Children and others, would be reduced. Thirdly, and just as importantly, it would stimulate savings through a sort of a nudge. One of someone’s jam jars would automatically be a savings account, and they would have to say yes or no to put a few pounds away every week or month. We all know what a difference that makes; it can be quite transformational to have savings and assets.