By Rob Gardner, co-founder of Redington
Meanwhile, life expectancy is increasing, with people aged 65 now expecting to live another 20 years. Those born today have a 50% chance of living to 100. Co-founder of SENS Research Foundation, Aubrey de Grey, predicts the first person to live to 150 has already been born. As a result, our dependency ratio in the UK is forecast to rise from 1:3 to 2:3 by 2040. This will create huge public liabilities and have profound economic consequences on Generation Y and Z.
To make matters worse, young people face high rates of student debt, a sky-rocketing housing market and an uncertain economic outlook. Yet, despite all of this, my biggest fear is the corrosive effect of financial illiteracy on the future of our young people. According to MyBnk, 9 out-of-10 people in the UK have received no financial education.
We need to enable our young people to be financially aware. This involves learning positive, basic habits around saving and investing. To mark this year’s Pensions Awareness Day, I have outlined five ways to create greater awareness around saving.
Improve financial education for savers
We regularly host ‘Classroom to Boardroom’ sessions with A-level students and it is clear they are lacking basic financial education. For example, they are unaware of basic saving concepts, such as the power of compound interest, which can transform their future financial security.
We need to envisage a society where everyone knows how to budget, save and invest. One of the pillars of this vision must be education. This requires a long-term approach and a radical shift in behaviour. From a culture of debt, we need to become a ‘save more, spend less’ society. This means implementing a far-reaching financial education programme to build the financial capability of our children – tomorrow’s workforce.
Adopt EAST – the language of the savings revolution
To be effective, our communication strategy must be Easy, Attractive, Social and Timely. We call this the EAST framework. The framework harnesses innate biases to influence behaviours through communication and can help create a healthier savings culture.
For example, the fact that people welcome automatic enrolment suggests there is a broader role for well-thought-out nudges that take the onus off the individual to make decisions, but, importantly, also help them to feel more in control of their future and plot out their individual financial journeys. Making our communication EAST is key to the savings revolution.
Bring savings into the digital age
We are living in the age of the digital consumer. A recent survey suggested 90% of our time on mobile devices is spent in apps. Over 2 million apps are available and 1.3bn have been downloaded from the App Store.
The UK’s financial industry has been slow in engaging with savings based apps that plug into the concept of ‘gamification’ to stimulate savings rates. Gamification, the application of elements of game playing, can help boost the nation’s overall attitude to saving through ‘nudging’ and helping young people feel in control of their financial futures.
Focus on outcomes
Understanding what you’re trying to achieve, setting goals and working backwards will inform your decision-making much more than the other way around. The principles of saving and goal based investing are the same for a FTSE 100 company pension scheme, as they are for a 20-year old setting out in the world of work: you must always begin with the end in mind.
Make it personal
Savings solutions need to be tailored to the individual. We all have different wants, needs and appetite to risk and any investment solution should reflect this. The one-size-fits-all approach doesn’t work. Communications also need to be personal and relevant to the individual. This is why we’ve created personalised DC pension funds for our staff at Redington which is tailored to them and their personal circumstances. We believe this is the future.
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