Do young people need to change their financial priorities? A panel debate on the recent report by MRM

A summary of the key points raised at MRM’s Young Money event.

The panel

• Darren Philp, The People’s Pension
• Rohan Sivajoti, eVestor
• Jason Butler, author of the FT Guide to Wealth Management
• Julia Rampen, Mirror Money online
• Sophie Robson, MRM

Chairs

• Rebecca Taylor, CISI/Aurea Financial Planning
• Lydia Romero, CISI

Key points

1. Financial education: How do we equip younger people to become financially independent?

Jason Butler (JB): The government, professionals and product providers can help young people take control of their financial lives. Ultimately though, responsibility lies with young people themselves. The key for young people is to change their internal dialogue and try to look for the positive in every negative.

Rohan Sivajoti (RS): When we talk about financial education, people say we need more financial education, but it has to be engaging.

Darren Philp (DP): There is far too much jargon in the finance industry which the average person on the street doesn’t understand. We need to get better at communicating these things.

JB: We should help young people to understand the implications of the small decisions they make each day. For instance, if you eat unhealthy food every day, and don’t do enough exercise, you’re more likely to end up with health issues. Similarly, planning should be a continual process of engagement.

Rebecca Taylor (RT): Financial advisers see a lot of people who are in their 50s. But they don’t often see people in their 20s. This is the time when you could really make a difference to somebody and help them structure their finances around very solid foundations.

 

2. Savings products, now and the road ahead: are the products currently on the market appropriate for younger savers? Is there a need for dedicated products for young people?

RS: The problem is, young people are actively disengaged with pensions because the rules change every year. They also struggle with the concept that a pension requires them to put their money away for 30-40 years without seeing it. To get round this, you really need to take Government out of the equation and make it a cross-party thing, or at least get a commitment from the Government not to change things for a certain amount of years.

Julia Rampen (JR): While I was pleased to see the launch of the Lifetime ISA (LISA), I’m also concerned it could be tempting for people to move their money to a LISA and opt out of auto-enrolment. The message could be lost that by saving through a workplace pension, people are effectively getting free money from their employers.

JB: It is understandable for people not to put any money into a pension fund, but it’s totally illogical not to, because that is essentially free money.

3. Financial priorities: Can young people have it all – own a home and have a comfortable retirement? Is there a need to reshape young people’s attitudes as far as homeownership is concerned?

JR: Does our idea of a comfortable retirement factor in homeownership? Even if they have very little money, a very large proportion of retirees own their own home. If those same elderly people are renting, that changes the picture.

DP: As a rule of thumb, if you want a decent retirement, you should be saving half your age, so if you’re 20, you should save 10%. If you are 40, this will rise to 20%.

RS: Young people should view retirement as a ‘30 year gap year’. Like a traditional gap year, you are earning no money and spending a lot, but unlike a traditional gap year, you have to maintain this for a number of years, so you need to make sure that money is going to last. This is also a bit of an age of no retirement.

JB: If you’ve got a long working life, you’ll need to save a lot less each month. The chances of you working until you’re 75 are very high and that should be seen as a good thing. You can have lots of mini retirements, with a series of step downs. That’s going to be the reality for most people.

Sophie Robson: Unfortunately, the elephant in the room is that young people don’t have enough disposable income to actually save. Therefore, until the underlying issues behind this are addressed, such as low incomes, low interest rates and high house prices, there is little we or anyone else can do about it.