If you were to ask school, college and university students for a list of priorities over the next 10 years, financial planning for their distant futures is unlikely to feature highly, if at all. The lengthy timeframes involved may suggest that younger generations have plenty of time to right this wrong, but in reality the matter is becoming critical.
In truth, the younger generation’s lack of engagement with, and understanding of, savings and debt management could be part of a growing crisis for the UK economy.
A disconnect between ‘millennials’ – those born since 1980 – and their personal finances has been a concern for some time, although the short-term difficulties have understandably received more attention than those waiting further down the line.
Younger people are tasked with huge financial decisions before even reaching adulthood, such as the funding of university fees, which carry potential lifelong implications.
This has been deepened in recent years after the coalition government decided to triple such fees, resulting in significant sums of debt being accumulated before many have even dipped their toes into full-time employment.
With the balance of behaviour heavily tilting towards spending instead of saving, trouble could on the horizon. The shift from defined benefit (DB) to defined contribution (DC) employer pension arrangements has put a further onus on individuals to manage financial affairs closely, but there is little evidence of this happening aside from the early successes of auto-enrolment.
As financial matters continue to become more complex, and a number of millennials adopt a live-for-today attitude, future generations and consequentially the UK economy are on an unsettling path.
“This is a big issue that needs to be grasped by the nettle. If we don’t deal with it, we won’t feel the cost for another 25 to 30 years. But it will be a horrible cost because people will truly find themselves living in poverty,” says Robert Gardner, founder of pension consultancy Redington.
These concerns are alarming, not least because they may herald the start of a vicious circle. Younger generations will struggle to gather the kind of asset base required to afford financial advice post-Retail Distribution Review, and this in turn could leave them even worse off in the long run.
“You do need a certain amount of money to make it worthwhile to see a financial adviser. And obviously, because of debt, millennials are not necessarily in a position to do that,” says Chris Hannant, director general at the Association of Professional Financial Advisers (Apfa).
Reversing these trends is easier said than done, but attempts to increase financial literacy represent a small step in the right direction.
In January 2011, the then-education secretary, Michael Gove, announced a review of the national curriculum, with a revised programme of study subsequently introduced in September 2014.
A key development was the inclusion of financial literacy lessons. From the age of 11 to 14, pupils are now taught the functions and uses of money, the importance and practice of budgeting, and managing risk. From the age of 14 to 16 this progresses to income and expenditure, credit and debt, insurance, savings and pensions, financial products and services, and how public money is raised and spent.
However, simply introducing new subjects into the curriculum could itself create issues, especially as, in many cases, teachers lack the required expertise. Evidence suggests teachers are in agreement with this.