How suitable are financial products for young savers?

Like a conventional mortgage, an offset one allows someone to overpay their monthly bills and save interest in the process but overpayments on an offset remain available to be drawn back down should the need arise, potentially making it more attractive to young people. 

In practice, the mortgage account is linked to a deposit account and before the mortgage interest is calculated, the money in the deposit account is ‘offset’ against the loan. The larger the client's deposit account, the less interest paid. 

While this might work for some young people, commentators have pointed out this is still a debt product - and more product solutions might be needed. 

One solution to the long term vs short-term savings problem is the National Employment Savings Trust's sidecar savings model.

While it is still too early to draw solid conclusions, given that it only launched in 2018, the Nest side-car model aims to ensure a better balance of short and long-term savings through combining an accessible ‘emergency’ savings account with a traditional defined contribution pension. 

Money is paid in through payroll dedication so the savings tool will build up money in their emergency account and pension pot. 

But commentators are keen to see how this develops, and whether it could set a standard for other schemes to follow suit.

LCP's Webb made this point during the FTAdviser In Focus podcast, suggesting the side-car aims to solve the problem of helping people make long-term and short-term savings through auto-enrolment.

At the time, he commented: "It encourages employees to think short-term savings is a good thing as well as making the most of your pension through employer contributions."

Young people are often overlooked but are the most affected by the lack of advice.Brockington

An investor can decide how much they want to save from each pay packet on top of their normal pension contribution and set an emergency savings target. 

Then, money will go into their emergency savings ‘jar’ and once that savings target is reached, the salary deduction will be sent to the saver’s pension pot on top of their usual pension contributions so at that point they’ll be putting more money aside for their retirement. 

According to a recent Nest report, there are some encouraging early indications from the sidecar trial, with 60 per cent of employees saying they think the savings tool could help them, rising to 80 per cent of those struggling with bills and other financial commitments. 

However, this is still early days and not widely adopted.

Platform access

Another option many young people are now considering is the use of platforms and apps that aim to simplify the saving process. Max Rofagha, founder of financial information app Finimize, says: "The less complexity, the better.’’