2 mins with… Sophie Robson, on young people and financial resilience

MRM consultant Sophie Robson has been in demand at a number of high profile events, looking in greater depth at the results of MRM’s recent Young Money report, “Generation Austerity: Brexit and Beyond. Here she explains how the findings feed in to wider themes in financial services and how those working in the sector can apply these insights to shape policy and products.
You joined the panel recently for a CISI event on young people and financial resilience. Can you tell us a bit more about the event and its key takeaways?
The event featured a great line-up, including Jason Butler, former owner of Bloomsbury Wealth, Emma Flaherty of the MoneyGirl website and Ann Griffiths of the Money Advice Service and took an in-depth look at how well-equipped the younger generation is to cope with unexpected financial shocks.
The event was inspired by the political shockwaves felt in the last year with the UK’s vote for Brexit and Donald Trump’s victory in the US Presidential election. According to the Generation Austerity report, 48% of 18-25 year olds expected to be worse off financially following Brexit, and the worry felt by the young about events largely outside their control really concerned us.
These worries were echoed by the panel and the audience at the event. However, the panel also offered some practical solutions and good insights into how Generation Austerity (the group of young people who have spent their formative years under the dark shadow of austerity) could arm themselves with the right tools to improve their financial outcomes and ways for the industry to support them in these plans. For instance, while the panel acknowledged the challenges faced by younger people in today’s economic climate, they also agreed that a positive mindset among young people was vitally important in bolstering their ability to manage their finances.
What about other events?
Last week, I spoke at the Owen James ‘Mindful of Investing in Retirement’ conference, giving a workshop on “Millennial money: shaping a more meaningful retirement through engagement”. With auto-enrolment reaching the smallest businesses this year, and with minimum contributions set to rise, concerns are growing in the industry that lack of engagement could cause the proportion of opt-outs to increase. I looked at ways the industry and young people can work together to create a robust dialogue around pensions.
I’ll also be presenting at the CISI’s Accredited Financial Planning Firms conference on April 26, on the subject of “Inside the mind of millennials: how are they making financial decisions?” With millennials becoming an increasingly influential and affluent group, I hope to offer some insights into what they actually want from financial services companies and how firms can tailor their products and services to make them work for the young.
How well equipped do you think Generation Austerity is to withstand financial shocks?
There is no easy answer to this. This generation is aware of the need to start saving early and regularly both to create a buffer between themselves and financial hardship, as well as to boost their chances of saving towards a comfortable retirement. However, younger people face difficulties not experienced by their parents’ generation. Insecure job prospects, stagnant wages and stubbornly high house prices create pressure on incomes, with nearly half of young people saying they simply do not earn enough to put any away according to the most recent Generation Austerity report.
What concerns me most however, are perceptions young people have of the events, which are often more negative than the facts themselves. While the stock market did crash briefly on the news, it quickly rallied and so far, the economy is holding up relatively well (taking all interpretations into account). But despite this, nearly half the young people in our report expected to be worse off following the UK’s decision to leave the EU. The industry and the financial media have a big role to play in cultivating calm, balanced viewpoints which take into account historical data and long-term outlooks, rather than focusing on the short term.
What can we do to make Generation Austerity more financially resilient?
There are a number of practical ways to help improve Generation Austerity’s financial resilience. Introducing financial education earlier on in schools as well as finding ways to reach those in this group who have left full-time education would help to improve levels of understanding and encourage a more positive mindset around money. Creating financial products which take into account the pressures this age group are facing (such as the soon to-be launched Lifetime ISA) should boost levels of engagement and encourage a perception that the financial services industry works for them. Also, effectively communicating the benefits of saving into these products and offering practical tips on how to get started should help to boost saving and begin to plug the savings deficit.
‘Engagement’ is very much a buzzword at the moment, particularly in the pensions world. What does effective engagement look like for you and how can the industry harness this to capture the younger generation?
Effective engagement is dependent on a number of factors, from improving knowledge of financial concepts to arming the younger generation with the necessary tools to make the best financial decisions. Trust is a crucial part of the equation; many financial firms suffered damage to their reputations following the financial crash and many young people still take a dim view of the sector. However, technology and improved data offer powerful opportunities for financial services to gain useful insights into customers as individuals and develop tailored programmes relatively inexpensively based on their specific preferences. For example, someone saving into a cash ISA might have very different needs to someone saving into a riskier stock and shares ISA and sophisticated data analysis (perhaps based on behavioural finance) might help the company to identify and recommend ways for each to maximise returns in ways that suit them.
The financial services industry has always been chiefly transactional in nature, but the rise of tools like social media and finance apps demonstrate an appetite among the young to build up a relationship with some of these companies. Companies need to look at ways to reward them for their loyalty.
What do you see as the key challenges for Generation Austerity over the next 12 months?
In the short term, pensions and saving will be a real focus for the younger generation. The Lifetime ISA will be launched in April, offering a flexible way for under 40s to save for a mortgage and a pension. With auto-enrolment reaching the smallest businesses, many young people will be contributing to a pension for the first time. The challenge is to ensure that these products help, rather than hinder, the younger generation.
Looking to the longer term, Brexit is sure to loom large. Once Article 50 is triggered, and we get more of a sense of how much bargaining power the UK actually has, we’ll be able to take a more measured look at how the constitutional change could affect Generation Austerity.