New research has shown that young people are finding it harder than ever to build up savings.
According to the Pension and Lifetime Savings Association young people, aged 18 – 35, want to save but find their ability to save “curbed by short term necessity”.
The research of nearly 1,000 young people, also concluded that:
- 51% of young people get more satisfaction from saving than spending money
- A similar number, 53%, disagreed that young people tend to live for today
- Perhaps surprisingly, more than half (57%) of the people surveyed said they had no debt, other than student loans
- Whilst 2/3rds of young people do not build up debt on a monthly basis
Why should young people save?
The reason which immediately springs to mind, is the need to build up a deposit to buy a house. Since the financial crisis, tightening mortgage criteria, coupled with a rise in house prices, has made it harder than ever for young people to build up a large enough deposit.
Despite numerous government incentives, these factors have pushed up the average age of a first time buyer to 30 in the UK, 32 in London (Source: Halifax).
Other than buying a house, there are many other reasons why young people should save, including:
- To build up a pot of money which means that have ready access to cash should an emergency or unforeseen expenditure arise
- To meet the cost of starting a family and pay bills during maternity or paternity leave
- To enable them to retire
Why do young people struggle to save?
The research found that young people want to save; 77% said that the pressure to save had increased over the past six months. Furthermore, around a third are managing to save, typically to meet short term needs, such as building an emergency fund, buying a car or going on holiday.
However, it seems there are many reasons why many young people are struggling to save:
- 48% said the cost of living was too high
- Whilst 43% believe their income is too low to enable them to save
- 30% said their rent or mortgage repayments were too high to allow them to save
- 25% of young people said their student loan was the reason why they could not afford to save
- Only 20% said their lack of saving was due to their lifestyle
It could also be argued that with interest rates at an all-time low following the recent cut, some of the incentive to save has been removed.
Commenting on the research, Joanne Segars, Chief Executive, Pensions and Lifetime Savings Association, said: “18-35 year olds are no different to many people – they want to save for a secure future but short term financial pressures get in the way. And it’s not surprising that without help this group prioritises short-term over long-term saving given the current rock-bottom interest rates and low wage increases.”
“Our research suggests many 18-35 year olds shy away from the sort of investments that give better returns over the long-term, but it also suggests that where a financial decision or situation becomes a fact of life, for example student loans, this group quickly accepts it and adapts. We’ve seen this behaviour in workplace pensions with a very low opt out rate from automatic enrolment of just 7% by those aged under 35.”
“Those younger savers staying in their workplace pensions are smart. Automatic enrolment provides them with a hassle-free way to save for the long-term – they don’t have to think about the investment strategy, or choosing the product, or moving their money, they just have to keep saving. Their own contributions are doubled by contributions from their employer and tax relief from the government; and they have time on their side – early savings benefit from compound interest, investment growth and time to recoup any losses.”
“The good news is a workplace pension is coming to every work place by 2018.” (Source: Pensions and Lifetime Savings Association)
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