In Focus: Intergenerational Wealth  

How suitable are financial products for young savers?

  • To understand the different financial needs young people have.
  • To be able to explain various flexible products that might help them save.
  • To be able to start conversations and help educate younger clients.
CPD
Approx.30min

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."

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.’’

He says there are three main characteristics of modern investors: 

  • They’re time poor and rely on bitesize media - like newsletters, social media, and virtual communities.
  • They’re inherently social - 94 per cent of our community discuss their investment decisions with their friends.
  • They learn by taking action. "If they want to learn about a market, they’ll go ahead and invest small amounts via fractional shares", he says.

Finimize capitalises on this by sending short daily newsletters to its over a million subscribers, explaining the latest financial news in an interesting and fun way. 

Its next step will be to build the ‘TripAdvisor’ for finance where users can read reviews on a variety of financial products. 

He adds: "We believe the next phase will be all about broadening access to high-quality investing information. By closing the information gap between retail and institutional investors, retail investors can start to make their own informed financial decisions.’’