BLOG: Talking about money shouldn’t have to be a fight…

November may have been dominated by Brexit and General Election debates, but it was also the Money and Pensions Service’s inaugural ‘Talk Pensions, Talk Money’ week, and this, at least, is an area where we can make a genuine difference.

It’s been interesting to see how various parties have approached both pensions and intergenerational issues in their manifestos over the last week. At times, it seems they’ve gone for the ‘easy wins’ amongst young people, inadvertently increasing the intergenerational issues in pensions or simply making promises that they’ll never be able to keep.

Perhaps assumptions and stereotypes should be expected in politics, but many people, including those in the pensions industry, continue to treat ‘young people’ as a different species - always assuming and very rarely just asking. This approach is getting us nowhere.
Intergenerational issues are important, and tensions are constantly growing. But simply starting a conversation may be the best place to start, and initiatives like ‘Talk Pensions, Talk Money’ are the way to do it.

It may not be a comfortable conversation, in fact I’d guarantee it won’t, but acting now to engage young people with their financial outlook may be the best way to avoid a pensions crisis in future. Without a genuine dialogue, young people are left to drown in a sea of resources and guidance - drained of any real advice. It’s no surprise then that there are some misconceptions.

Just recently, one of my friends was convinced he had no cause to worry as his dad had explained how pensions work and he felt confident he would have sufficient savings. The catch? His dad had a gold-plated teachers’ pension, he simply assumed auto-enrolment was the new equivalent.

Equally the recent Office for National Statistics data showed an increasing number of young people favour self-employment due to the expectation of a high income.

However, the ONS statistics themselves stated: “While many 16- to 21-year-olds associate self-employment with a high income, the reality is that self-employed workers earn around £3,800 less per year, on average, than employees.”

Expectations for young people are clearly out of touch at times – so why do we do nothing to correct, and educate, them?

Most people don’t get a genuine financial education at school, we were all too busy learning the importance of Pythagoras Theorem and The Canterbury Tales…

This lack of financial literacy is clearly a detriment as we enter the real world, and we need to work to empower young people (ok, all people) with the tools to genuinely understand their financial wellbeing and act to improve it.

Pensions are incredibly complex, and everyone would agree that a level of understanding, or at least preparation, is needed that most of the time simply isn’t there.

When I joined the industry, I confess I was disappointed that the general suggestion is not that people learn the importance of savings and a healthy financial outlook, but that we take advantage of inertia to ‘sneak’ savings from their paycheck.

I appreciate the sentiment, and we all have the same goal to ensure people have a comfortable and safe retirement, but young people are not apathetic though. You only need to take one look at the recent climate strikes to refute that claim.

Indeed, there are young people eager to engage with their finances on an individual level, but they face an uphill battle for the privilege. It’s no secret that financial advisers are reluctant to take on low earners and any accessible communications are so broad they may as well not exist.

The shift is no doubt underway, but a glacial pace isn’t good enough. Macro saving and passive investment apps are presenting a way for young people to engage with their savings and finances but, much like auto-enrolment, at much too slow a pace.

To be fair, much like auto-enrolment, this passive saving can be incredibly successful, but are we setting people up to fail?

Many in the industry have been discussing the issue of increasing auto-enrolment contributions and how the industry will one day support this influx of members through decumulation. But would this be a cause for concern if we simply discussed the issues with members?

There will always be intergenerational inequality, and one generation will always wonder why others benefited where they haven’t. I have no doubt this cycle will continue, but open and frank dialogue will at least bring these inequalities to the fore now, when young people still have time to protect their retirement.

Starting a conversation on pensions isn’t always easy, in fact many of my friends have had to ban it as a topic of discussion on nights out when I’m around (I can promise you that suggesting you put an extra contribution into your pension instead of buying another round is an incredibly unsuccessful tactic). But I do know more than a handful of friends who have already started to contribute to their pension, or upped their contributions, after a simple conversation (or nag).

It's time to rip of the band aid and begin a dialogue with young people. It’s encouraging to see the industry promoting initiatives such as ‘Talk Money, Talk Pensions’ … I’m not saying it’s the whole solution, but I think it’s a good place to start.

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