Between low interest and high inflation, managing your savings in the current climate is no easy feat.
Worryingly, almost half (46%) of UK adults say they have low understanding of financial matters, while 24% have little or no confidence in their own ability to manage money (source: FCA).
But, when we break the demographics down by generation, it becomes clear that Generation Y / Millennials (those aged 18-34) are the group most in need of guidance and advice, as 44% report feeling confused about the savings landscape.
How do Millennials compare to other generations?
Research from the Pensions and Lifetime Savings Association has shown that, despite almost half claiming to be confused, Millennials are saving more than the previous generation of adults. Each year, Generation Y (18-35-year-olds) are saving an average of £3,445 in non-retirement savings, whereas, Generation X (35-55-year-olds) are saving £400 less each year.
However, Millennials show less enthusiasm for long-term savings than their older counterparts. With 30% saying that saving to secure their desired lifestyle in retirement is a priority, compared to:
- 34% of 35-54-year olds
- 55% of over-55s
This is not surprising, as it is normal for pensions to become a bigger priority as we get closer to retirement age.
The Millennial attitude toward saving
Short-term savings are important for some Millennials, with 34% prioritising holiday savings. However, almost the same amount (33%) said that buying their first home is their savings priority and 25% are focusing on clearing their debts.
Lifetime ISAs (LISAs) are a product designed with the Millennial age group in mind. They offer a 25% government bonus on deposits of up to £4,000 each year between the ages of 18 and 39, provided that the money saved is used to put a deposit on a house, or retirement.
Unfortunately, only 4% of 18-34-year-olds have a LISA, and an alarming 41% are unlikely to open an account (Source: Pensions and Lifetime Savings Association).
However, one third are likely to open one in the future. Of those:
- 69% would use it alongside their workplace pension
- 18% intend to have a LISA as their only savings method and will opt-out of their workplace pension
It is promising that the likelihood of having a private pension fund increases as Millennials get older, with the research showing that 30% of 18-24-year-olds, and (61%) of 25-34-year-olds, have private pension savings.
However, a lack of savings is a serious issue at any age. With no financial safety net, those with inadequate funds are vulnerable to financial difficulties should they:
- Be unable to work due to ill health
- Need to support a loved one financially
- Experience a financial emergency
The research suggests that the same proportion of Millennials have no cash savings at all, regardless of age:
- 20% of 18-24-year-olds
- 19% of 25-34-year-olds
Why is it important to understand savings?
Unfortunately, there are several headwinds facing 18-34-year-olds in their efforts to save:
- Significantly higher student debt than previous generations
- The rising cost of renting
- Significantly higher house prices
However, help has been forthcoming, in the form of:
- Lifetime ISAs
- Help to Buy ISAs
Rather than being seen as an excuse to give up on financial planning and saving, these headwinds should be the driving force behind a desire to understand the options and how initiatives such as Help to Buy and the Lifetime ISA can be used to meet your objectives.
Buying a home is getting more and more expensive, which means that younger people are looking at higher deposits. The earlier and more efficiently saving can begin toward that, the easier it will be to get onto the housing ladder. This is where Help to Buy and Lifetime ISAs come in to play.
Auto-enrolment is in its final stages of introduction, which means that every eligible person over the age of 18 will be enrolled in a workplace pension this year. It is therefore important to know what that means, where those savings are being kept and how the system works.
In addition, the minimum contributions to workplace pensions are set to rise for both employers and employees in April of both 2018 and 2019, so employees need to be prepared to budget for that.
Whilst opting out of workplace pensions is possible, it is rarely wise. Staying engaged and understanding how much is being saved, what employers are adding to that and how it will benefit the later years of life is the key to stopping younger people from making decisions they may later regret.
Sources of advice
It is never too early (or late!) to seek financial advice. Fortunately, there are a range of reputable sources available to suit every budget and lifestyle, including:
- Advice websites
- Government sources
- Independent Financial Advisers
Of course, we are always happy to help, too. You can contact us on 0800 612 8099 or request a call back by clicking here.