As with most generations, the needs of millennials are different from those of their predecessors.
Changes in demographics, low interest rates, more expensive properties, the changing nature of employment, and higher levels of student finance are different challenges to those faced by Generation X and Baby Boomers.
Indeed, these are the five key drivers of intergenerational change that the Financial Conduct Authority (FCA) has identified as affecting the millennial population.
These changes, coupled with inadequate financial education and lack of engagement with and from the financial services sector, are all catalysts for potentially poor financial outcomes. The good news, however, is that these poor outcomes can be avoided.
Keep reading to discover why financial education is so important, some of the challenges that my generation are facing, and how your children and grandchildren could benefit from professional financial planning.
Financial education – Who is responsible and why is it needed?
A 2019 study by Portafina, found that most parents want their children to learn financial life skills. In addition, two-thirds of people felt that learning about money when they were younger would have helped them later in life.
Nonetheless, the study found that nine in ten parents feel it’s not their responsibility to teach their children these crucial skills, but instead that it should fall to the school curriculum.
Portafina’s study explored the current school curriculum with Sue, a secondary school maths teacher from Kent. She said:
“In the current economic climate, teachers are very aware of the importance of financial education, but also of their lack of training. Educators often only have knowledge based on their life experiences and may not feel confident to instil financial expertise on students. There is also no benefit to schools in teaching their students basic financial knowledge; it will not be reflected in the school’s success statistics which parents and OFSTED are so keen to know and scrutinise.”
Initiatives such as the Personal Finance Society Education Champions scheme are providing complementary financial education for teenagers and young people which is helping to plug part of the knowledge gap that teachers have. However, I would highly encourage everyone to start financial education at home.
As an example; parents can introduce a tangible aspect of saving. Rather than transferring funds to a bank account for pocket money, give children coins and notes which are then placed into a piggy bank which can only be opened when they reach a specific target.
These early-stage experiences with money can help to introduce and reinforce essential concepts, which will then form the basis for future life experiences. Many of these will be critical for ensuring that your children have the best possible chance of achieving their chosen lifestyles.
Challenges for millennials
I’m sure that you will have all come across an article over the last few years discussing the trend of millennials deciding to defer buying homes and settling down. While it is thought that this deferment is only short term, at an average of four years, both life events have historically been triggers for seeking financial advice.
These initial interactions with advisers usually are very focused; however, they have historically led the way into broader conversations about financial planning. This means that millennials are not just deferring settling down; they are also postponing the start of meaningful discussions about their futures.
In addition to the delay in starting financial planning, more young people are becoming self-employed or working in the ‘gig economy’, which leads to irregular earning patterns. This makes it difficult to contribute to traditional strategies for saving for the future, such as pensions.
To compound matters further, a separate study by Schroders revealed that, in 2017, half of all IFAs turned away millennial clients with less than £50,000 to invest.
It is perhaps no surprise, therefore, that young adults are turning to automated solutions to help them manage their financial lives. Apps such as Moneybox and Nutmeg have grown in popularity in recent years, as they allow users to make decisions quickly and without the requirement of advice. However, services like this are building a culture of ‘we can do it ourselves’ which I can’t help but feel is dangerous.
Many of these automated services have been labelled as ‘robo-advisers’, indicating that the services provide advice to their users. This has sparked some controversy within the financial industry, as these automated services typically don’t offer advice, but rather guidance. The FCA’s definition of robo-advisers is ‘automated platforms using algorithms to guide consumers’.
Although access to guidance is a step in the right direction, given that there are barriers to engaging with a more traditional advice route, we need to ensure that people are educated as to the difference between guidance and specific advice that is focused on their individual needs and aspirations.
In my opinion, all these challenges will, in time, lead to development in the personal finance universe, granting us all with greater flexibility and control over how we save and utilise our wealth to meet our needs. However, for the time being, this is not the case.
How could your children and grandchildren benefit from professional financial planning?
It has never been more critical to provide financial education to the next generation to ensure that they are sufficiently prepared to deal with the complex landscape that is personal finance.
Whether you have already started teaching your children, or if you haven’t got around to it yet, we would encourage you to include your children in your planning sessions with your adviser. This could be anything from a short introductory session to introduce who we are and the role we play in your lives, to a full meeting focusing on a specific area of planning.
There are several advantages of involving your children in your financial planning, some of which are:
- It helps facilitate conversations about money and wealth
- It allows your child to see the benefits of working with a professional financial planner
- It can provide a useful education to younger people and help them to understand important and complex financial concepts
- It provides a valuable starting point for legacy planning, so your children can understand the philosophy and priorities behind your approach
- Your child will build a basic knowledge of your financial plan which can help them if they ever need to become more involved in your affairs.
We’d be delighted to hear from you as to how we may be able to facilitate conversations about money and wealth for you and your family. Please send us a message via the HFMC Wealth website or call us on 020 7400 4700.
FCA Discussion Paper DP19/2 – Intergenerational Differences
FCA Insight – Robo Advice – will consumers get with the programme? https://www.fca.org.uk/insight/robo-advice-%E2%80%93-will-consumers-get-programme
Portafina Study – Should there be more financial education in school? https://www.portafina.co.uk/press/should-there-be-more-financial-education-in-school/