A generation Y-er’s verdict on the latest developments in the world of young people and personal finance.
Pensions expert Michael Johnson has been considering the future of pensions this week. According to him, the current pension model is no longer fit for purpose. Instead, young people should be concentrating on paying into ISAs in order to guarantee a comfortable retirement.
He believes that many young people do not realise that their parents are often the beneficiaries of a final salary pension scheme. Nowadays, most work pension schemes are defined contribution – under one of these schemes, income in retirement is dependent upon how much the employee has contributed over his or her working life. So it is unlikely that they are going to be able to replicate the comfortable lifestyles of their parents without saving hard.
Johnson notes that attitudes to pensions have changed:
“A pension is like any other consumer product but unlike any other consumer product there is no immediate return, you have to wait 20, or 30, or 40 years’.
‘You are waiting decades to receive an uncontrollable return that has been eaten away by annual charges.”
He also acknowledged the challenges of encouraging young people to save, in an age of instant gratification:
‘With Generation Y, we need to get them to save at all. It is not about what mechanism they save in to.”
StepChange Debt Charity warned that unemployment is a greater cause of debt problems for under 25 year olds than any other age group.
34% of those under 25 who sought help with the charity in 2012 felt that it was unemployment that caused it.
The under 25 age group were also the group who were most likely to be unemployed. 42% of those the charity had helped from this age category were out of work, compared with 30% in the 25-39 age group and 31% of those in the 41-59 category.
Over in the USA though,things are looking more positive, at least if Generation Y-ers are compared with older age groups. Pew Research Center has found that between 2001 and 2010, levels of indebtedness in young households (households headed by those aged under 35), has decreased overall. Excluding student debt, 56% of young households saw a decline or no increase in the amount of debt they had.
A growing number of young households – 22% – do not have any debt at all.
Older age groups had generally built up more debt in these years.
Unfortunately, the reasons suggested for this were less encouraging. Part of this drop in indebtedness can be explained by the fall in the number of young people buying their own homes – and hence taking out mortgages.
My worry though is that young people have been scared off by debt, and that this fear might be preventing them from taking on ‘good’ debt, such as mortgages, in order to help them move on to the next stage of their lives.
SAVING AND INVESTMENT
A new study by the Share Centre reveals that young people are making surprisingly sophisticated decisions when it comes to investing their money.
The survey, which looked at people investing more than £10,000 found that younger investors, in this case, those aged under 25, were more adventurous than older age groups.
Key findings were:
-young investors are more likely to invest for income.
-they are more willing to invest in non-traditional funds, such as investment trusts, gilts, corporate bonds and exchange traded funds.
-they are less interested in individual stock-picking than other investors.
-they are more likely to have a specific purpose in mind for investing.
-they have a more diversified portfolio; and
-nearly 60% of investors aged under 35 were positive about the stock market.
This indicates that those who are able to begin investing early in life have a great opportunity to take on more risk in the long term in order to get the best returns on their investment.
In a last ditch attempt to reverse the deluge of super rich foreign nationals buying houses in the capital, Mark Field MP called for a New York-style levy on foreign-owned properties left empty or a five per cent capital tax. Many young people are increasingly struggling to rent or buy property in the capital, and ordinary Londoners are being forced further out in a bid to find affordable housing.
Field said the situation was “mocking the ambition” of ordinary Londoners, and said that the surge of foreign investment was having a “pernicious economic impact”, creating “intolerable” inequality.
EMPLOYMENT AND EDUCATION
The Department for Business, Innovation and Skills has this week published a paper, looking at understanding the implications for young people not in education, employment or training, entitled “Motivation and barriers to learning for young people not in education, employment or training”.
The key findings were:
– The main motivating factors for undertaking education and training were the opportunities to find fulfilling employment, and gain financial independence.
-Those who are the furthest away from education and training are the least able to identify reasons to enter training and education.
-Good quality, independent information, advice and guidance (IAG) is essential if young people are to make best use of training and educational opportunities.
– Financial barriers to studying can be the most difficult to overcome. These might include childcare and supporting themselves financially. Those who struggle financially place great value on financial support whilst studying.
-Many young NEETs have not benefitted very much from education in the past, and might need extra convincing of the value of additional training and education.
I look forward to seeing how these findings are put into practice… But in the light of the Cat Reilly Poundland case, perhaps, the Government should look into offering support for those in unpaid internships, if only to prevent this form of work experience from becoming the preserve of the rich and privileged.