Lack of Financial Literacy Means Millennials are Failing to Save

Young adults in the UK lack awaness on saving and investment habits compared to the older generation, according to Selftrade

Karen Kwok 4 July, 2016 | 9:15AM
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Young adults are failing to save thanks to a lack of financial knowledge – which could have devastating long term effects on their wealth.

The findings, provided by an online trading platform Selftrade, revealed that among 2,000 people surveyed in the UK, two thirds of adults aged 29 and younger, have no plans to save into any investment based products over the next year as “they don’t understand the stock market”.

This indicates a division of generation on saving and investment habits when the same question asked among people aged 40 and only older 22.5% do not have plan to save into any investment based products over the next year.

The report also revealed a quarter of young adults admit to not saving at all, and spending more than they earn, compared to only 9% of those over 40s.

Richard Donegan, Director at Selftrade said that it is better for young adults to start their investments journey early on.

“We urge young savers to first fully understand their goals and what they are saving for,” he said, “The earlier you start the better and this understanding can be achieved in a variety of different ways including reading the prospectus for funds and ETFs, as well as looking out for the latest news and analysts’ views on stocks to help you understand the business it is in and the risks it might face.”

Young People Face More Financial Challenges

Income of young adults aged 22-30 has fallen further and faster than older age groups since the financial crisis in 2008, says in a report by the Institute of Fiscal Studies in the UK.

Rob Booth, Director of Investment & Product Development at NOW: Pensions said young people today face multiple pressures on their finances from repaying student debts to escalating rents, making them harder to save.

However the uncertainty surrounding the UK’s economic future certainty doesn’t help. Bank of England Governor Mark Carney on Thursday hinted at an interest rate cut this summer after the Brexit outcome. This means that savers will continue to suffer from record-low saving rates.

Carney also warns against the long-term effects of an economic slowdown, saying that there was a risk of warping the personal finances of a generation permanently.

He added that according to research, people who have experienced low returns throughout their lives, report lower willingness to fake financial risk, are less likely to participate in stock market.

Booth agrees, saying: “Those that can afford to save, will most probably be prioritising saving for their first home. For those unfamiliar with investment markets, the available products can appear complex, daunting and inaccessible.”

In an effort to fight against uncertainty in the UK’s economy, Donegan suggested young adults to find “the best product suited to their needs is a helpful first step for them and one which will hopefully make them more financial secure for the future.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk