Later LifeFeb 21 2017

How to help millennials plan for their financial future

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How to help millennials plan for their financial future

Millennials must plan for their financial future or run the risk of being plunged into poverty.

This is the warning from several experts, who claim young people today will have limited or no safety net to fall back on in later life and must get to grips with financial planning. 

Keith Churchouse, IFA & co-founder of Surrey-based SaidSo.co.uk, says: "It’s unlikely that anyone else, including the state, is going to have much money to help millennials in the future if things go wrong or when they retire."

He adds that although more people are now saving something for their later life through auto-enrolment and workplace pensions, it’s not going to be enough to give them a secure nest egg. 

Mr Churchouse adds: "Saving for the future, in whatever format through an Isa, property or shares, is usually worth it and many understand that at retirement, their income is unlikely to come from just a pension."

There are many pressures faced by young people, which often prevents them from accessing financial advice to buy a house or save for their retirement. In fact, recent research from the Department for Work and Pensions has found that financial confidence in the younger population is low, with more than one-in-four under-30s confessing to knowing little or nothing about pensions issues.

Millennials must get back to the basics of managing their money by paying off high interest debt first, such as credit cards, and avoid accumulating more debt. Stuart Ritchie

This problem is compounded by the increase in life expectancy, which means they also need to have a bigger savings pot for their later life. According to the recent ONS: Expectation of life, Principle Projection report, in 1987 life expectancy for a 25-year-old man was around 49 years, but in 2017 it is 56 years.

This marks an increase of nearly 15 per cent. At the same time, the proportion of the population likely to be earning and paying taxes relative to those who are older and likely to be retired is decreasing.

During the next 35 years, 25 per cent of the total population in the UK is projected to be aged over 65, compared with 18 per cent in 2015. By 2050 those aged between 16 and 64 are projected to decrease from 63 per cent to 57 per cent, according to National Infrastructure Commission.

Previously, many experts argued that a lack of trust or cost hindered people’s chances of accessing financial advice. But Phil Brown, head of policy at LV=, says it is also because many millennials are hitting financial goals later on in life.

He adds: “This generation is finding themselves growing up in an era of poor savings rates and relatively static wages which makes financial planning more important than ever. 

"Getting a mortgage was traditionally someone’s first touch-point with a financial adviser and was often the catalyst to consider products such as income protection, and understand the value of advice. But the rise of Generation Rent means fewer people are going through this stage.

"It’s vital people continue to consider financial advice to help them increase their resilience to financial shocks both in the short and long term, but often people who haven’t used advice before are put off by a perceived lack of trust or the associated cost."

Engaging millennials

Alistair McQueen, head of savings and retirement at Aviva, believes despite the advice gap, a great prize awaits IFAs who are savvy enough to engage millennials. He explains: “The financial challenges facing today’s younger generation are unprecedented.

"Student debt is rising, house-prices are beyond reach, there are no jobs for life, and final salary pensions are finished. It’s a perfect storm. Their need for help is greater than ever, and advisers are uniquely placed to deliver. 

"Investing in younger savers today also makes good sense for all businesses tomorrow. There are over two billion under-30s in the world today, and by 2025 they will represent 75 per cent of the global workforce. No business can afford to ignore 75 per cent of its future market."

However, Fiona Tait, pensions specialist at Royal London, thinks advisers must adapt and deliver improved digital services to engage millennials more effectively. She comments: "Millennials have grown up with the internet and so the most effective way to get them started is to use digital and social media.

"Improvements in digital communications, including the promised pensions dashboard, should make it easier for millennials to gather information and submit the data needed to create a financial plan, as well as doing some of their own research before they speak to an adviser.

"Digital services also make it easier to offer regular updates and tailored communications which improve consumer engagement. This leads to better consumer loyalty and a greater likelihood that the individual will continue to commit to their plan and adapt it so that it remains suitable as their priorities and financial status changes."

Cutting costs

So, what can young people do get on the property ladder? According to Stuart Ritchie, chartered financial planner, at AES International, millennials must get back to the basics of managing their money by paying off high interest debt first, such as credit cards, and avoid accumulating more debt.

He added: "Cut your costs – do you really need an expensive luxury item? If you want to own a house, you need to establish a budget and to stick to it. You then need to save and invest regularly and wisely. 

"If possible, set up payments into your investment or savings account automatically on payday each month, so you don’t even see the money in your current account.

"That way you’ll be less likely to spend it instead of saving it. Focus on keeping investment costs low, investing passively not actively. Start today, and chip away at your goal."

He adds that saving for a house and a pension pot are not the only areas that need attention. In fact, he comments that life assurance and a will are also essential for anyone with any dependents. 

Aamina Zafar is a freelance financial journalist