Jars Today Jam Tomorrow

For most of us, having a bank account is as normal a part of everyday life as having indoor plumbing. It's essential for getting paid, for paying our bills and accessing the credit market and other financial services. Often, getting the best price for something is tied to paying by direct debit and therefore to having a current account.

But many people on low incomes still budget, save and conduct their everyday lives in cash, even if they do have a bank account. Actually, quite a lot of these people used to use a current account but have stopped.

There are many reasons for this. For some there are issues around overspending and misuse of credit but for many there is simply a gap in financial education and basic household budgeting practices.

Often people have been 'burned' by penalty charges. Low income households typically find savings from direct debit payments wiped out by penalty fees of �140 in a year.

While no single banking product will solve the problems of everyone, research indicates that a significant proportion would benefit from Jam Jar accounts.

Jam Jar Accounts allow people to split their account balance into different 'Jars' for spending, saving and paying bills and set up automatic processes like low balance warnings.

Essentially, they provide a structure built into the account to help people plan their monthly outgoings, clearly separating 'disposable income' from what is needed to meet regular bills and also provide a 'nudge' option to automatically save a little each month. They are a straightforward tool in getting people to move from 'juggling' expenses and debts to 'budgeting' their income and expenditure.

To some extent Jam Jar accounts are already available in the UK, and providers often charge a fixed monthly fee to cover the costs of the account. But Social Finance estimates that they are currently used by only 150,000 people. Widening access and uptake requires both raising awareness of the accounts but also addressing the cost of them, which at the moment would put most people off.

None of us believe the Government could or should force people into getting a particular kind of account or service, nor dictate to banks what should be in their product development piplines. But it can help raise awareness of the option and encourage potential providers with trusted consumer brands, like a high street bank or the Post Office, as well as third sector providers such as Credit Unions, to explore offering Jam Jar accounts and look at linking fees to customer circumstances.

There is also room to explore how the costs of the accounts might be offset, at least in part, by, for example, social landlords and utility companies, who would benefit from customers becoming more reliable bill payers.

The Government can also support providers to offer Jam Jar accounts to vulnerable benefit recipients to support the transition to monthly payments under Universal Credit and to act as a basic financial planning tool going forward.

Note: The views expressed in this post are those of the author, not of the 2020 Conservatives group as a collective, the Conservative Party or the Government.