Originally published here.

This article examines the saving behaviour of ethnic minorities in the UK. Within the context of pension planning, we investigate saving for retirement patterns in relation to ethnicity, gender and age. We use data from the Family Resources Survey (FRS) to analyse employment status, income, saving types and levels. Although we find profound heterogeneity, ethnic minorities show higher levels of unemployment, lower income and consistently lower levels of saving for retirement compared to our white control group. Disadvantages of ethnic minorities during their working life persist, especially for women, although to a lesser extent than in the past, and continue to affect private savings and prospective retirement income. Indian and Chinese men have experienced the greatest improvements in terms of employment status and income and this is reflected in higher levels of saving for retirement since the mid 1990s.

In this study, we examine the literature on saving and planning for retirement of ethnic minorities. We use data from the Family Resources Survey between 1994 and 2008 to analyse employment status and income levels of ethnic minorities in the UK and explore their effect on saving patterns as well as age and gender differences. Our findings show that there is significant variation within ethnic minority groups in terms of employment status and income, with Pakistani and Bangladeshi consistently showing the highest unemployment rates and lower incomes. Women’s employment conditions tend to be worse across all groups with high rates among those in part-time employment or out of work, while Pakistani and Bangladeshi women feature particularly low full-time employment rates at any age.

We find that income levels of ethnic minorities are consistently lower than those of the control group over the timeframe examined. Low incomes and financial hardship throughout the working life affect Pakistani, Bangladeshi and Black minorities more severely and in greater numbers than other ethnic groups such as the Chinese and Indian. This is also reflected very clearly in the saving patterns. Gender is also an important factor in determining saving behaviour. Only a small percentage of Asian respondents have savings of any kind and, for those who do, the saving levels are low, especially amongst women.

There are important differences in the saving patterns within different groups: Indian and Chinese men, save in line with the control group, while Pakistani, Bangladeshi and Black women save consistently less across all the sub-periods examined. This finding further confirms the strong relation between disadvantage in the labour market, lower income and lower lifetime savings that some ethnic minorities are still likely to experience. With regard to the types of savings, our findings suggest that those of Indian, Pakistani and Bangladeshi origins, especially women, choose to save mostly in National Saving schemes, possibly because they are perceived as simpler and safer compared to investments in the financial markets. As expected, saving levels are higher for those in the ‘Prime’ age group; however, we find that Black Caribbean and Black African respondents save less than the other groups across all age cohorts. The lack of substantial savings amongst these groups can be linked to generally low-income levels and precarious employment patterns. We add to the debate on saving for retirement by examining the saving behaviour of ethnic minorities. Our results have important implications in terms of private saving policies.

They indicate a worryingly small number of savers among ethnic minorities and very low levels of retirement savings for most ethnic groups, especially for Pakistani and Bangladeshi women. Personal saving schemes and tax advantages put in place by successive governments to promote private saving for retirement have had a limited effect amongst ethnic minorities, while saving behaviours seem to be greatly affected by employment patterns and financial welfare during the working life. We find that at a time when policy makers highlight the importance of private saving and personal responsibility for the provision of retirement income, some ethnic minorities are still at a greater risk of poverty in old age than other groups. We show that over a decade after Ginn and Arber’s (2001) study, ethnicity and gender are still important determinants of the disadvantage experienced by some in terms of adequacy of saving for retirement.

You can read the full article here.