‘A risk people could mis-prioritise their finances’
Speaking about Help to Save when it was first announced back in 2016, Martin Lewis said: “Encouraging people to save is a good thing, however there is a risk ‘Help to Save’ could substantially mis-prioritise people’s finances.
“Already, many people make the mistake of trying to save when they are in debt, and yet the cost of debt for most usually vastly outweighs the gain of saving. In a perfect world, everyone would have savings for at least six months’ worth of bills put aside in case of emergency – but we don’t live in a perfect world.
“If you’ve £1,000 on a credit card, which can be up to 30% interest a year, paying it off with your savings that earn you less than 1% is very beneficial, but people often try to do both. In fact, the right move is to pay back the credit card with your savings and only then try to save. If an emergency happens in the meantime, in the worst case you borrow back from the credit card, leaving you no worse off than where you started.
“My worry with ‘Help to Save’ – especially because of the long delay before people get the bonus – is that people may start to think that everyone should put aside money each month, when the truth is for many with expensive debts, especially payday loans, that’s a bad idea. So, ‘Help to Save’ must be accompanied by strong guidance of who should and shouldn’t do it – rather than a blanket encouragement.”