These days, pensions and young people don’t really mix. According to the Office of Nation Statistics, only 34% of men and 38% of women in their 20s are saving towards retirement. But that’s all about to change…
Next year, millions of people of all ages are going to be automatically enrolled into a workplace pension scheme. Soon, terms like ‘defined contribution’ and ‘annuity’ will be entering the vocabulary of my generation for the first time.
New research into young people’s attitudes towards money by PR company MRM, found that those terms above are befuddling to those in their 20s. It found that just 11% of 20-somethings knew what a final salary scheme or annuity was, while only 7% knew what auto-enrolment was.
The problem with pensions
When it comes to pensions and young people having them, the problem is clear. The UK has a culture of financial immediacy – we want our spending to have an instant impact on our lives, and placing money into something that can’t be touched for 40 years seems too big a commitment to make.
And even if the desire to save is there, people’s ability to do it is not. We’re in an environment of static salaries and rising prices, so even if we want to put money aside for the future, the sacrifice may just be too big to cope with.
In fact, the report suggests that young people feel that they need to be earning at least £25,769 to even think about saving for a pension. People in their 20s feel that a wedding and buying a car is more accessible to them than saving for their retirement.
Reassurance with insurance
Another concerning find was that people in their 20s prioritise taking out life insurance over buying a home, saving for health care or even taking financial advice. To me, this suggests a lack of understanding about the protection market and what insurances you really need in your 20s.
Without a home or family, someone in their 20s doesn’t need life insurance, but will certainly need to cover rental payments and bills if they can’t work. But as my colleague Martyn says, few people recognise the importance of protecting their income.
The findings of the report paint a pretty bleak picture for young people and their personal finances. So it’s time to start tackling the root of the problem by introducing financial education in schools now, so that the teens of today are better able to prioritise their finances.
But if like me you’ve already hit your 20s, take time out to do some research and understand the financial products out there. If you can’t afford to take professional financial advice, you can make use of free resources like Which? Money or the government-run Money Advice Service.