On one hand, Brits are battling the rising cost of living and higher stress levels, balancing complicated lives. On the other, we have convenience at the tap of an app, dramatic increases in quality of health and life expectancy, and brands looking to serve our every need - except when it comes to wealth management.
Right in the sweet spot of this dynamic are Generation X. The children of the baby boomers have the greatest opportunity in human history, are happier than any other age group, but in their droves are failing to plan for their financial future.
What is driving this short-termism? Why, when they are mastering the present day, do they ignore the future? What needs to change and how can the wealth management industry help?
In a new report, Moneyfarm has investigated the short-term thinking that currently jeopardises the future of almost 40 million UK adults financially. We have identified three ways this thinking impacts long-term investments.
Wealth managers now have an opportunity to remove the preconception that investments and finance are complicated.Our research highlights that today almost a quarter of Britons don’t plan for their long-term future, at all. And a further quarter plan less than six months ahead.
This illustrates just how endemic short-termism is becoming. Seven in ten Britons have no plans for retirement. Eight in ten are not yet planning to purchase a house.
This behaviour and way of thinking impacts financial tendencies too. When plans are made, on average, most people do save money towards them. However, these people are only passively saving. They have the intention to save but instead enter autopilot mode and expect this intention is enough to make a change.
Over half of people don’t save at all, and simply try to reduce their spending. There is clearly a good intention, but converting this into real behaviour isn’t happening as there is clear confusion for consumers for the best place to invest their money.
Psychologically, it can be a struggle for anyone to keep motivated when trying to achieve long-term goals, particularly when more immediate priorities come into play.
The here and now overtakes our intention to act on our plans for the future: almost half of Britons claim that everyday responsibilities are the biggest barrier to attaining their long-term goals. Plans are forgotten when attention is shifted towards what is happening in the present.
This is reflected in the UK’s financial planning.
On one side of the coin, 43 per cent of respondents do regularly save towards an objective, with 15 per cent on automated standing orders and 28 per cent moving different amounts of money into savings each month.
However, turning to the short-termist side of the coin and 57 per cent of people simply try to reduce their spending to save, with one in five not saving any money whatsoever. Almost a quarter of respondents are more concerned with spending money on the now rather than saving.
In reality a third of the UK doesn’t really manage their money at all. People prefer to keep things in ‘automatic’ mode either managing money as it comes in or leaving it on autopilot by relying on standing orders or mental accounting.
Considering the impact of short-termism on our future selves and families, nearly a quarter of Britons feel disappointed with their lives and current mind-set.
Regret is a powerful emotion that we find difficult to shake off. Our brains keep track of past choices and simulates alternative scenarios for those missed choices. It’s an ongoing battle between happiness in the here and now and regret that may be felt in the future.
Changing our mind-set is not easy. And this this lack of self-governance extends to our financial security. A third of us feel totally unprepared for the financial future (22 per cent) or try not to think about financial wellbeing in the future at all.
This is exacerbated among younger age groups and women. Women are almost twice as likely to feel unprepared for the future financially (26 per cent) than men (16 per cent).
But it’s the 35-44 year olds who are burying their heads in the sand with 16 per cent saying they try not to think about it and a further 28 per cent feeling totally unprepared.
It is clear that among this uncertainty, traditional wealth management as it’s commonly understood is at a turning-point; in the last few years we have witnessed the recent democratisation of wealth management.
The rise of digital wealth managers and technology-driven investment platforms have opened the door to provide more personalised advice and high quality products to those that have been previously been ignored by the traditional industry.
With new Mifid II regulations helping to shed light on this previously well-shielded world, wealth managers now have an opportunity to remove the preconception that investments and finance are complicated.
To cut through the short-term mind set, consumers need transparency in fees and performance, as well as simplicity in solutions.
This will facilitate a better quality of service for an audience under served by the financial sector - an audience that is highly aware of the need to invest but has little guidance as to the best approach.
This will put consumers at the heart of their wealth management solutions, where they belong.
Richard Flax is chief investment officer for Moneyfarm
