Act now to save lost generation of investors
Experts fear that anyone leaving school or graduating over the next few years faces potential hardship in their later life unless more is done to educate them about their finances.
By Mark Smith, Senior Reporter, FE Trustnet
Wednesday July 11, 2012
Aside from the seasonal saving-for-university articles in the weekend papers, young people are largely overlooked by the investment industry.
Many advisers and product providers presume that they are too preoccupied with paying off their debt, keeping a roof over their head or going down the pub to worry about putting money away for their future.
Equally most young people are unaware of how financial services can help them plan for their future.
As most advisers will testify, the earlier someone starts saving, the better off they are in the long-run due to the benefits of compounding interest. However, it is not uncommon to see people postpone saving for later life until well into their thirties.
Adrian Lowcock, senior adviser at Bestinvest, says to simply allow this state of affairs to continue is unacceptable and that the current generation of school-leavers and graduates will face hardship in later life unless more is done to engage them.
"Young people are going to be forced to take more responsibility because of the pensions crisis, a rising retirement age, the recession, inflation and low interest rates," he said.
"You name it; everything is making life more difficult for investors right now. Young people have been hit the hardest by unemployment as well."
The Junior ISAs launched last year are aimed at under-16s, while the National Employment Savings Trust (NEST), to be introduced this autumn, aims to ensure people begin saving for their retirement as soon as they start working.
However, Lowcock says these products are not the final answer.
"I’d like to see personal finance on the national curriculum," he continued.
"Children sitting in maths lessons often struggle to see how the skills they are using are relevant to the real world but relating them to investments, credit cards, paying bills and earning money can engage people and set them up with everything they need for later life."
"I’m not saying seven year olds need to be putting their pocket money into a pension pot but if you keep things simple then you can begin to make a difference."
Ian Price, divisional director of pensions at St James’s Place, believes that engaging with young people is a problem that has long been recognised but never adequately addressed.
"The best thing the pensions industry could do to engage young people is drop the word ‘pension’ from its vocabulary. It instantly turns people off."
Mark Dampier, head of research at Hargreaves Lansdown, agrees.
"If we want people to pay more attention we should stop using the word," he said. "It just bores them and they stop listening. I always talk about a monthly savings plan, because that’s what it is."
Lowcock thinks there is another simple measure that would further improve the relationship between the financial industry and young investors, but that it has so far been met with resistance.
"The language of the investment management industry is alienating," he claimed. "We need to ditch the jargon and keep things simple. Journalists do a great job at communicating complex ideas in a simple way but fund managers are still reluctant."
"They want to be seen to have intellectual capacity and resources and this leads to them over-complicating simple concepts."
Shane Mullins founded The Question of Trust campaign in recognition of the identity crisis faced by the industry. He believes negative news headlines are even more to blame for the lack of interest in financial matters.
"There has been a damaging run on trust building up in the financial sector over many years. We are now at crisis point," he said.
"If we fail to arrest these challenges, I fear we will breed a generation of mistrust and the social consequences and impact of this could be profound."