Sophie Robson, Consultant, MRM, talks about the disconnect between what millennials want and what they can afford
In today’s uncertain economic world, millennials are juggling an increasing number of challenges to their financial wellbeing, whether it’s insecure job prospects, persistently high house prices or the fact that the generous defined benefit pension schemes enjoyed by their parents have been replaced by riskier defined contribution schemes. These have combined to make them less optimistic about their ability to achieve financial independence. In fact,
36% of young people admit being less financially savvy than their parents were at the same age.
On the other hand, millennials are also regarded as the YOLO generation (you only live once), with its connotations of profligacy and desire for instant gratification. Recent research by RateSetter, for instance, found that this generation is ‘clueless’ about money, with over half admitting to frivolous spending, such as on takeaways – buying one at least every fortnight. This trend can be seen elsewhere: according to data by L.E.K. Consulting, 45% of millennials subscribe to online services such as Netflix – more than the number who are saving for a pension – NOW: Pensions found that 65% of 18–25-year-olds don’t have one.
Despite this, research on millennials is increasingly revealing a sensible, conservative side. MRM’s own research, set out in the annual Young money reports (which survey 1000 18–25-year-olds and aim to get under the skin of young people on financial matters) has demonstrated that far from being spendthrift and short-termist, this is actually a generation that is very keen to save and very aspirational about the future. It’s just that pressures on their finances are preventing them from doing so.
Our Generation A: from austerity through aspiration report (published last year) shows how the current generation of young people has grown up in the dark shadow of austerity, and consequently has quickly grasped the importance of making financial provision for the future. However, this climate of uncertainty is also preventing them from fully engaging with financial products. For instance, we found that 65% were not saving into a pension, with 43% saying this was because of a lack of disposable income. And 20% reported being put off pensions through a lack of understanding.
Young people do need to be encouraged to make the most of their money and consider that what they spend now won’t be available to them later on
So, how can we reconcile these very different portrayals of the same group of people and what lessons can those of us in the financial services industry take away from this?
There is a clearly a disconnect between what millennials hope to achieve financially and what they are actually able to. Young people have been disproportionately affected by the rising cost of living and resulting pressures on their disposable income. If they feel they are being shut out from engaging fully with financial services, it is perhaps not surprising that this increases the desire to maximise their experiences in the ‘here and now’ by splurging on the occasional extravagance. With figures by Halifax revealing the average mortgage deposit in the UK is now £32,927, they may feel with some justification that the odd £10 here and there is unlikely to make any difference to the overall outcome.
However, young people do need to be encouraged to make the most of their money and consider that what they spend now won’t be available to them later on. In this respect, the market is finally catching up. A profusion of micro-investing apps – such as Moneybox – have hit the app stores, which give users the option to automatically round up their purchases and transfer the excess to a savings account. Suddenly, small change counts – young people now have an opportunity to save small amounts of change quickly, easily and cost-effectively.
Overall though, prevailing economic headwinds mean that young people face a long, difficult journey on the road to financial fitness. There are no easy answers, but initiatives such as micro-investing look set to be an effective way of helping young people engage with financial services whatever their level of income.
MRM’s next Young money report is due to be launched later this year. For more information, or to pre-order a free copy, please email sophie.robson@mrm-london.com