Young people want to save and invest, but their main source of advice is their parents. Early help from a professional could make all the difference.
Are young people really as useless with money as some think?
Pensions provider Standard Life and researchers Explain the Market got together and talked to 1,000 under-35s: they found over four in five described themselves as ‘sensible savers’, while two in five said they were saving more than last year.
However, many more said they were seeking out financial help.
“It’s not about educating younger savers”, said one anonymous respondent.
“People need practical help problem-solving to make life under these tough conditions easier – not churning out information and wishing the current conditions were not the case.”
As someone in their 20s and a finance journalist that makes for difficult reading: I feel we as an industry already provide practical tips and information, but we simply can't provide tailored solutions to each person's problems.
What people in their 20s need is professional one-to-one financial advice – so why not give it to them?
It’s time the Government funded a free session with a financial advisor for every person in their 20s. Done right, it could save them and the country a small fortune.
Mum knows best
Older generations had to learn about money the hard way, so why can’t my generation?
Unfortunately, the ‘school of hard knocks’ isn’t much use when it comes to money.
Whilst some older people diligently saved – and others received now-extinct gold-plated pensions – many did neither and ended up relying on the State Pension.
“We often hear that young people need to ‘learn’ from those of us over 40”, explained Guy Shone, CEO of Explain the Market.
“We need to serve them better but not ‘educate them’ because most of the time we are preaching about talents we don’t really have.”
This is also unfortunate because Standard Life’s survey found the top source of financial advice for millennials is our mums.
Yes, you heard that right: not mobile apps, social media, or loveMONEY; those in their 20s get financial advice from their parents.
And whilst mum has the great advantage of always wanting the best for you – and the financial discipline to feed a family – she is unlikely to be a qualified financial expert.
A nudge at the right time
The reality is that Government is already meddling in our finances, through pensions auto-enrolment.
Young people haven't tended to contribute much to their pensions despite having the most to gain, as their savings will accumulate over time.
By stepping in and forcing young people to contribute or actively opt out, the Government has raised contribution levels to among the highest in the world.
In theory, that will mean fewer people relying on the state and lower costs in future.
Whilst everyone needs to save for old age, the rest of our financial lives are far more personal. A financial adviser can deal with this complexity, whether it’s helping people get out of debt, save up to buy property or start investing.
The average age at which people currently seek financial advice is 35; if they had started at 25 they could save £34,000, a study by unbiased.co.uk and MetLife found.
Like with auto-enrolment, nudging people at the right time – i.e. early – could give them a good financial platform for life.
Better then nothing
Introducing a free hour with a financial adviser for, say, every 21-year-old clearly has some issues to be ironed out.
It’s a huge handout to the advice industry, which would need to be regulated to ensure these sessions are taken seriously and young people aren’t encouraged to take out high-risk products they don’t understand.
Should these sessions be means-tested? That’s yet another debate: both poorer and richer young people could benefit in different ways from advice.
Nor is it clear how to persuade people to take up the offer of free advice.
What’s clear is that, in the absence of trusted expert advice, aspirational young people are falling prey to ‘advice’ from crooks.
The Financial Conduct Authority says those under-25 are six times more likely to trust investment advice online than those over 55, and twice as likely to be the victim of binaries fraud.
Schools are finally beginning to teach personal finance skills and debt charities provide free advice for those already in serious financial trouble.
Let’s not forget those twenty-somethings stuck in the middle.
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