Earlier this month I, like many of the 14 million baby boomers in the UK, hit a milestone birthday. As friends marvelled that I survived to this age, I reflected on days past and those yet to come. Never have I seen so many issues needing attention from all of us with the biggest concern.
First and foremost is climate change. COP26 made some impact with world leaders agreeing to try to reach the 1.5c Paris scenario and reduce carbon emissions. Recently ESG fund launches dominate the landscape – about time too – and are helping the finance industry make the world a better place for future generations.
The rise in house prices and generous DB pension schemes means baby boomers and the older silent generation hold the wealth, whilst Gen Z find it near impossible to buy the home of their dreams. They will often have to save for as long as nine years to have a deposit, according to Yorkshire Building Society.
Everyone in financial services has a responsibility to help the young and future generations understand the importance of saving for the future. These young lives will have increased life expectancy but lower birth rates meaning there will be longer retirements and greater need for funded elderly care.
When I was at ‘sales school’ in the 1980s we were driven to sell to strangers by pushing their ‘fear or greed’ inclination. It remains true that financial products need to be sold as they are not willingly bought. The regulators have made the cost for financial advice through adviser charging too high an entry for Gen Z who are left to DIY invest. According to Boring Money, AUM across all major DIY investment providers reached £360bn at Quarter 3 2021, up 33% from the end of Quarter 2 2020. And according to Deloitte, there are c2,500 UK FinTechs many chasing the little spare cash of the Gen Z. For example, 61.47% of Freetrade’s UK retail investors are aged under 35 with 21.92% between 18-25, offering a free share if an ISA is transferred to them.
The young tend to always want to be risk takers and we need the life and pension industry to attract the attention of younger investors to inform them about and protect them from high-risk single share purchasing. The industry must evidence why collectives managed daily by expert fund managers or synthetic trackers over time outperform DIY investing and are for most, the better risk option.
The big traditional life and pensions companies must teach the saving public about regular savings, the basics of investments and the benefits of compound interest. It annoys me that whilst cash ISAs pay less than 1%, inflation is at a ten year high, galloping on currently at 4.2%. The British people saved a whopping £4.8bn into cash ISAs in a year the latest figures from 2019/2020 show, with a greater number of women saving in cash ISAs as they tend to be more risk averse. Wesleyan research states 47% of us aren’t even sure what inflation is. Every day this money is worth less and there is no obligation on providers to educate on the damaging effect of inflation on cash.
A study by Now: Pensions showed that 86% of 18–35-year old respondents believed more should be taught about pensions; 23% said they would be more inclined to save if they had a better understanding of pensions. It will be a watershed moment when the basics of financial planning are mandated in the school curriculum and more emphasis given in universities. Sadly, I doubt that this will be in my lifetime.
Kim North is managing director at Technology & Technical
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