How can the industry get young people interested in saving? Part I
My generation has it tough these days. Final salary schemes are all but dead and the housing ladder is out of reach to most. However, studies have found that young people do understand the importance of saving early and contribute regularly in order to retire comfortably. But there are a number of barriers that are stopping them from effectively engaging with financial services.
Since one of the key issues facing young people today is the risk of them not being able to build up enough assets to allow them to retire comfortably, this blog will focus on pensions and saving.
So what is putting young people off saving?
Firstly, there’s the affordability issue. Unemployment is high amongst young people and many of the best opportunities are in expensive cities, such as London. After living expenses, that doesn’t leave much to deal with important issues such as saving for the future, meaning our good intentions can come to nothing.
MRM’s recent report: “Generation Austerity”, found young people had other saving priorities. When asked what their top priority was, 37% said it was saving towards a house or flat (versus 22% for saving into a pension).
Next, there’s inertia. Young people just aren’t starting to save early enough. We’re aware of the well-known arguments about starting early. But it is hard to connect the far-off idea of retirement with the short-term costs of living: to put it bluntly, there is always something better to spend your money on. Hopefully auto-enrolment should mitigate this problem, but it is unlikely to be enough without other means of regular saving.
Another issue is that many young people have a very ‘emotional’ response to money. We spend our money as we get it and can be prone to money weaknesses. We ‘fear’ money too, worrying about how much we will have left at the end of the month. The actual concept of money is quite simple: spend less than you earn and save the rest.
Young people are confused by pensions: those surveyed in the MRM report thought they would need an annual income of £42,149 to fund their retirement. This is an astonishing figure – nearly four times the national minimum wage. It shows how limited most people’s practical understanding of pensions is.
I think part of the issue for me is in tangibility. For example, we’re always being told what it costs to bring up a child, or what the average wedding costs; but we hear next to nothing about how much money you’ll need per year in retirement.
Then there’s the house issue. For most of my friends at the moment, the big thing is saving for a deposit. Houses are so expensive that most young people can’t even think about putting money away for a pension just yet.
There is clearly disconnect between what the industry thinks people know about pensions and what they actually think/understand about pensions.
So tomorrow, I’m going to look at some of the solutions to this issue.
MRM will be holding an event this Friday, 7 November with the Chartered Institute for Securities and Investments, which explores young people’s attitudes to money.
Join us at the National Audit Office, 157-197 Buckingham Palace Road, Victoria, London, SW1W 9SP (For directions, click here
Speakers include Chris Williams (Wealth Horizon), Alex Hilton (Generation Rent), Iona Bain (Young Money blog) and Amy Lazenby (Close Brothers).
The event will also be webcast live for those unable to join from 11:15am