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It’s no secret ‘millennials’ are struggling. The juggling act of buying a home, starting a family and saving for retirement is harder than it has ever been. Our Chancellor seems to be obsessed with the ‘next generation’; he steadfastly repeated the phrase throughout his Budget speech.
Yet I’d take a punt most of our clients celebrated their 30th birthdays some years ago.
Our industry’s future depends on us building trust and relationships with a new wave of investors. Increased incentives from the government alone aren’t going to be enough to turn the tables. What are the best ways we can connect and get young people more engaged with the idea of investing?
Trusted channel
One option might be through our existing clients. I recently came across an interesting report from the International Longevity Centre – UK. Responding to Financial Advice Market Review consultation questions, the centre analysed data from more than 37,000 people on which sources of information are most trusted when making financial decisions.
For better or for worse, family and friends are pretty high on the list. Many of our clients are likely to have children (or maybe even grandchildren) earning professional salaries for the first time. They are probably quite interested in ideas on how to talk about financial well-being with their kids.
So whether you’re in the advice, guidance or research line of business, customer service remains key. The millennials might seem like an elusive crowd, but through referrals and recommendations we can reach out.
ISAs or pensions?
The traditional route for motivating young savers to start early has been a chat about compounding: invest £50 a month from age 20 and see it turn into £76,000 by age 60; invest £50 a month from age 40 and see it turn into £20,500.
Even with these numbers, it can be a hard sell. The new Lifetime ISA may provide a vehicle whose rewards are more immediate, and more straightforward.
The ISA seems aimed at creating a single, simple savings vehicle that straddles both the retirement and the mortgage saving worlds, offering a 25% government bonus for every pound invested up to £4,000.
A thousand pounds a year for your first £4,000 invested, every year? That’s easy to get your head around.
An exit fee plus the loss of any bonus paid if people withdraw their money before the age of 60 will encourage long-term savers. But an exemption for those that want to withdraw early to buy a first home means the Lifetime ISA’s goals also align with the previously announced Help to Buy (which can now be rolled into the Lifetime).
For the first £4,000 of a young person’s annual savings, at least, it seems a no-brainer.
I still very much see a place for investing through the ‘standard’ stocks & shares ISAs. For younger millennials it might be a moot point – £4,000 a year may well be all they can manage initially.
But as salaries increase and more money can be saved, the flexibility of a standard ISA will continue to help young people meet a range of other goals – the kids’ education, perhaps, renovations, travel funds.
In the higher income brackets, pensions too remain appealing. The tax relief on pension contributions for additional and higher rate earners is higher than the 25% bonus the government is offering on the Lifetime ISA – although eventual withdrawals from the ISA will be tax-free; not so from the pension.
As always, it will depend on personal circumstances, but starting the conversation with clients to reach out to their kids today could be the first step in an essential journey.
Darius McDermott is managing director at Chelsea Financial Services
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