Posted by: Adam Weston
04 July 2024
Limited financial literacy, low savings and investment habits, and infrequent investment monitoring all signify a gap in engagement with wealth management among younger generations, which presents huge challenges for the government and investment management.
Marianna, a 32-year-old project manager living in Kent, articulates a sentiment prevalent among her peers: financial investment has become an unaffordable luxury.
"My friends and I don't know how we'll save for the future. Most of us are having a hard time buying a house. We're stuck renting, with unstable and low-paying jobs, so saving or investing feels impossible," she says.
Her concerns are exacerbated by the need to build an emergency fund, save for a house deposit, manage student loan repayments, and keep up with the rising cost of living and inflation.
"Financial investment has become an unaffordable luxury." - Marianna, 32, Project Manager
Marianna’s experience is not unique. It encapsulates a broader issue affecting the UK's economy: when younger generations lack financial literacy and adequate savings or investment habits, it portends economic instability. These individuals are more likely to encounter financial crises, leading to higher debt levels and reduced consumer spending, thereby impeding economic growth.
The repercussions extend beyond personal finance. Low savings and investment rates can stymie economic growth, curtail tax revenues, and strain public services. Furthermore, inadequate financial literacy can exacerbate economic inequality, fueling social unrest and complicating governance.
Addressing these issues through education and policy reforms can foster a more stable and prosperous economy.
Level of Comfort with Basic Principles of Investment
The Defining Wealth for the Next Generation Survey, conducted by Invessed in partnership with YouGov, provides valuable insights. Only 48% of Gen X, Millennials, and Gen Z respondents feel comfortable with basic investment principles. This comfort gap is more pronounced between genders, with 37% of women expressing comfort compared to 61% of men.
Theo Paraskevopoulos, CEO of Invessed, emphasizes the necessity of targeted education and support to bridge this gap.
“Wealth managers must simplify their language, build financial literacy, encourage good financial habits, and illustrate long-term benefits to engage this demographic more effectively.”
Percentage of Monthly Income Typically Invested
Nearly half (47%) of younger generations either save nothing or invest less than 5% of their monthly income, a trend consistent across genders. This lack of savings leaves them vulnerable to financial shocks, such as unexpected expenses or job loss, increasing their reliance on debt.
This situation presents significant challenges for the government. Higher reliance on social safety nets and public assistance programs, increased economic inequality, and reduced consumer spending can all slow economic growth. Furthermore, it limits tax revenue, constraining funding for public services and infrastructure.
Improving financial education, enacting policies that encourage saving and investing, and supporting stable employment can help mitigate these challenges.
Technology Used to Actively Monitor Investments
A notable finding from the survey is the lack of engagement among young investors, with only 61% actively monitoring their investments. Gender disparities are evident, with 72% of women and 50% of men not tracking their investments, possibly due to time constraints, lack of confidence, or perceived complexity.
Although 26% of young investors use self-investing apps, a sector accounting for a growing proportion ($3.41 trillion) of global wealth, 12% still rely on paper-based reports to track investments.
Sentiment of Long-Term Financial Future
The survey reveals a pervasive lack of confidence among Gen X, Millennials, and Gen Z regarding their financial future. Marianna echoes this sentiment, indicating a widespread need for enhanced financial education, planning, and support.
"Younger generations could be encouraged to start planning for retirement early by offering better incentives for contributing more to pension plans," she suggests. "Providing resources and guidance on balancing short-term financial goals with long-term investments is also crucial."
Ensuring financial services are accessible and understandable, including transparent information about fees and benefits, can improve financial sentiment and stability.
Intention to Seek Professional Investment Advice
Paraskevopoulos notes that 56% of younger generations are unlikely to seek professional investment advice in the next five years, mainly due to high fees and other priorities. This reluctance is consistent across genders.
“This data underscores the urgent need for wealth managers to adapt their practices to the evolving needs of these younger investors by simplifying language, offering financial literacy initiatives, and providing digital-first client apps with built-in financial literacy tools.”
By bridging the financial literacy gap and promoting professional advice, the government and the investment management sector can foster a more financially secure future for younger generations, enhancing overall economic stability and growth.
Invessed conducted a client engagement survey in partnership with YouGov Plc. All figures, unless otherwise stated, are from YouGov Plc. The total sample size was 2,068 adults.
