From the blog: The ‘millennial’ generation – broadly defined as the cohort born between 1980 and the late 1990s – is now the largest working-age demographic in the UK, and will represent some 75 per cent of the global workforce by 2025.
This generation has faced financial pressures in several areas. The income of the average 22-30-year-old remains 8 per cent lower than it was in 2008, according to the Institute for Fiscal Studies.
Furthermore, many millennials may need decades to pay off their student debt, not to mention soaring house prices, which have led to them being labelled ‘generation rent’.
This generation has faced financial pressures in several areas. The income of the average 22-30-year-old remains 8 per cent lower than it was in 2008, according to the Institute for Fiscal Studies.
When millennials realise there is no one acting in a fiduciary capacity on their behalf, they may take matters into their own hands and move their money to asset managers that address their concerns on sustainability, social responsibility and ethics
Furthermore, many millennials may need decades to pay off their student debt, not to mention soaring house prices, which have led to them being labelled ‘generation rent’.
Against a backdrop of financial strain, it is easy to understand why millennials might view saving for retirement as futile. In addition, while earlier generations benefitted from a more stable working environment and final salary pension schemes, arrangements for younger workers are less generous and the onus is on the saver to ensure contributions are sufficient.
So how could this disengaged cohort, many of whom seemingly prefer to spend their money now instead of saving for the future, be nudged into making a start? One answer could lie in the world of financial technology.
Millennials are a tech-savvy generation, having grown up with the internet, and expect to be able to manage most aspects of their lives online.
Robo-advice and innovative new apps such as those associated with micro-investing, which encourage people to save a very small amount of money regularly, have been suggested as a way to help young people save for their future.
Appeal to principles
Another means of engaging millennials, and one in the hands of investment managers rather than technology wizards, is through environmental, social and governance factors.
With millennials directly affected by the fallout from the global financial crisis, many are likely to be cynical of the financial services industry and have come to the view that things might have turned out differently had companies been managed more responsibly.
Moreover, when millennials realise there is no one acting in a fiduciary capacity on their behalf, they may in time take matters into their own hands and opt to move their money to asset managers that address their concerns on sustainability, social responsibility and ethics.
Despite some different priorities and financial concerns, the underlying long-term savings needs of millennials – in particular the need to grow and preserve capital in order to deliver a sustainable income in retirement – remain similar to those of the previous generation.
The desire to grow the pot in the accumulation phase, preserve capital as retirement approaches, and move to an income-paying focus when entering retirement is as relevant as ever.
The challenge for investment managers will be to deliver flexible investment solutions with clear charging structures that can restore trust and advocate the need to save for the long term in the face of increasing longevity.
Catherine Doyle is head of defined contribution at Newton Investment Management
