How can we expect the young to save? Here’s how!

millenials are top savers

A happy millennial

The odds are stacked against our kids.

  • Low interest rates make paying a mortgage a cinch
  • But tight credit makes getting a first-time  mortgage a nightmare
  • House price inflation makes first-time buying near impossible
  • And pushes up rents as demand increases.

Add to this

  • The drag of student loan repayments
  • The cost of travel – again linked to affordability (of homes close to work)
  • Falls in real wages for the under 40’s (evidenced by Resolution Foundation report)
  • Pathetic yields on savings accounts

Why Save?

Is it any surprise then that kids aren’t saving? The financial odds are stacked against them and those I’m speaking to have little interest in playing their parent’s game.

If the ONS stats are right, it’s not just Millennials but their parents who are struggling to save. Credit cards and car finance are still are most used financial products!

The one financial windfall  kids have to look forward to is inheritance , which is precisely the opposite of a savings strategy. It’s a “sit tight and wait for mental and physical collapse” strategy. Look at the Royal Family – it’s high risk.

Frankly, if I was a kid, I would struggle to rationalise saving. My reason for saving would be abstract, something along the lines of “keep saving and it will be alright”. This is pretty lame but it’s hard-coded into most young people’s financial DNA.

Let’s not lose sight of that.

The answer is not “better products”

The savings products we have – primarily workplace pensions but also directly purchased ISAs, are now fit for purpose – even good value. The financial services industry services the needs of savers, but does not inspire them.

Young people will not be inspired by the old people to save, my analysis above suggests that young people see old people as the problem.

The answer is …… regular savings over time!!!

The regular payment of at least 8% of earnings into a non-spendable savings pot will create a pot sufficient for market growth to get to work. Over time, the money kids will save into workplace pensions will build into an appreciable sum. A 22 year old on average earnings contributing 8% of the band can expect to have saved £20,000 by the time they are  30.

This is a tangible amount of money, a genuine achievement which will be a reality for most young people enrolled into workplace saving. It is enough money to attract the attention of young people. It is an amount that could have genuine interest. The Australian experience shows that once you’ve saved more than the cost of your car, you start getting proud not just of your savings, but yourself.

This is why it is so great that after all the time between conception and implementation, auto-enrolment will soon be universal (at least for employees).

The young do not opt-out

The answer to the question raised in the blog, is not to make it attractive to save. Young people when they think about it, see savings as deeply unattractive.

The answer is to make it easy and normal to save, which is what auto-enrolment is doing.

The small payroll tax which is the AE contribution is about to get bigger in April and bigger again in April 2019. But I don’t see the hikes in contributions as an issue.

That is – provided we can give young people some genuine feedback on what their financial sacrifice is producing.

Critical to this, we need to get young people easy access to their balances with hopefully some good news , that their pots are worth rather more than their contributions.

Bad news is better than no news!

But even if the news is awkward , we need to tell it to savers as it is. Most young savers are in global equity index trackers which have done brilliantly over the period of auto-enrolment so far.

But a reversal in the speedy growth in equity valuations (plus the kicker of a weak pound up-valuing overseas equities, is very likely.

We should not shy away from delivering bad news as well as good.  “Over time” means over decades and the impact of workplace savings will on individual financial self-esteem is still a decade away. Over that time there will be plenty of market crashes.

We cannot immunise people from the short term shudders of frightened markets.

Fiduciaries must emphasise the positive

We must point out the key savings messages

  • The tax advantaged savings system into which AE contributions are paid
  • The quality of the savings vehicles available from employers
  • The ease of saving through payroll deduction
  • Ready access to performance data showing how investments are doing
  • Information on how the invested money is being put to good use

We do not need to ram this stuff down our kids’ throats, but we do need to emphasise the positive.

In this, the IGCs and trustees should be key. They – not the providers – should be the key messengers, for as independents, they are able to provide a balanced and authoritative view.

millenials are top savers

Millennials want to know what’s going on.


But not shy away from reality.

The messaging needs to be absolutely clear. There are no short cuts- no pension holidays- no postponement of contributions.

Months when money is not saved is ground lost , that can only be made up by paying in more in future years.

There is a cost of delaying contributions and we should not be shy of pointing this out.

We owe it to our kids to be honest about saving. There is no get quick rich here. This is not about 1m hits on you tube and instant fame and success. Getting savings right is a lifetime thing.

In my recent conversations with those under 30 about saving, I get one over-riding message.

Tell it like it is.

millenials are top savers

Financial self-esteem

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , , , . Bookmark the permalink.

7 Responses to How can we expect the young to save? Here’s how!

  1. John Mather says:

    One other reason is the constant attacks on investment and advice community labelling them as sharks who are ready to rip them off at the first opportunity. The English love a good moan especially when it absolves them from their own failings. If there is to be a new model then let’s see the whole picture with a business plan and transparency for all recognising value delivered not an hourly rate with partners sitting on top of a pyramid of worker bees

    I am concerned that the “market” is the one regulators constantly seek to protect however who is the market, no longer the owner of the capital but one investment manager selling to another investment manager. So is the market efficient? What is “Modern” about portfolio theory?

    Are we seeing too many artificial constructs where the underlying investment risk is hard to understand bought by the one with more trust or ignorance than the seller. Often it is superficially cheap and that “analysis” is enough to get a few headlines.

    We saw this in the Lloyd’s market some years ago when they decided not to be just providers of insurance but reinsurance or reinsurance of reinsurance and soon stately homes and landed gentry were selling the silver to cover the losses.

    Most people don’t save because they live from hand to mouth and have no surplus income. Nurses get a salary increase at below inflation while 44 regions of the NHS have tiers of management with redundancy packages and pension funds at lottery winning levels.

    Corporate Governance in many public companies is clearly not fit for purpose and in politics the Kinnock/Farrage gravy train model is tolerated by an apathetic public and unashamedly milked by the “public servant”

    For those who can save apathy rules. Investment is deligated to fund managers rather than solving the fundamental problem of ignorance and lack of numeracy. Avoiding personal responsibility. Which brings me back to the bitching and moaning about price that results from the apathy.

    I am sick of the Yorkshire War Cry

    Ow Much?

    Have a great lunch I am in Bristol advising on how to finance a socially responsible housing project

  2. Colin Meech says:

    The only way to help our youth is sack the Tories.

  3. nigel hawkes says:

    News last week was that the savings ratio has reached an all time low of 1.7%. Apparently we are not saving enough. With only negligible below inflation rates of interest on savings accounts offering no real return it is perhaps surprising that the savings ratio is as high as it is.
    The young have been impacted more by unrestricted migration which has driven down wages while simultaneously driving up rents and house prices. If the BoE can’t raise rates to dampen spiralling asset values and re-awaken our savings culture a generation will consider saving to be pointless.

  4. DaveC says:

    Lesson for future.

    Ponzi economies in finite environments don’t work.

    Borrowing off your offspring breeds resentment and an indifference to contributing to keep the elders in their comfortable lifestyles of ignorance.

    Hopefully some smart young people will ask why we as a society can’t print our own money without interest attached, rather than buying it off a central bank with interest.

  5. Kay Ingram says:

    Excellent article Henry. Absolutely agree we need more engagement with Generation Rent. We are recruiting from their number to extend advice provision. We are also building smarter advice delivery. Agree we need no new products but we do need product providers to facilitate the Pensions Advice Allowance ( many are lukewarm)and Government to deliver the increase in tax free employer sponsored advice.promised last year.

    • henry tapper says:

      I agree with you Kate – the Pension Advice Allowance is a great way to get to those being frozen out of advice by RDR’s unforeseen consequences.

  6. DaveC says:

    I’d be all in on pensions if there were options like taxed contributions which were untaxed at the other end, or tax free 100% lump sum at retirement, and forced 100% transparency.

    While the industry lives in a gov supported opaque bubble with captive savers, no thanks.
    Another reason young people probably won’t save much for retirement.

    Interest charges alone might be near their pension contribution level!

    If only their pensions attracted anywhere near 6%

    Students will smell this con a mile away.

    Who is taking them for a ride on fees, and then shafting them on their pension savings?

    And you wonder why they all ran to Corbyn?

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