By Trevor Clawson.
A savings gap is opening up among 22 to 30 year-olds. According to the Office for National Statistics, more than half of young people in this age group have no savings whatsoever, but at the other end of the spectrum, those who do save are putting much more aside than their counterparts a decade ago.
The latest release of ONS Wealth and Assets data, reveals that 53% of 22-30-year-olds do not have either a bank savings account or a tax-efficient ISA. This compares to a figure of 41% in 2008.
However, the figures also reveal those who do save have an average of £1,600 stashed away, compared to just £900 a decade earlier. And when the ONS crunched the numbers for the top ten per cent of savers, it found that the average amount put aside was a healthy £15,000.
In addition to the savings gap, there is also significant variation in the amount earned by young people, with 10% of those in the 22-30 age group paid more than four times as much as the lowest earners.
The savings deficit goes some way to explaining one of the other key findings in the figures – namely that homeownership among the young is in decline. The report suggests that the number of homeowners who are still in their 20s fell by 10% between 2008 and 2017.
Only about 25% of millennials own their own home, while around 40% rent and the rest are living with their parents. Increasingly, it seems that homeownership appears to be beyond the reach of a significant number of young people. This, in turn, raises points to the evolution of a two speed Britain, in which there is a growing divide in terms of wealth and asset ownership.
So what lies behind the data, and particularly the low savings rate? The pressures on millennials entering the workplace have been widely documented.
The cost of buying or renting a home is high, many have student loans to pay off – effectively adding to their tax bill. Added to that is the fact that wages across the economy are stagnant. Meanwhile, the rise of the gig economy has seen the creation of new jobs, but many are low paid.
All that puts a huge amount of pressure on the finances of a great many young people. So much so that according to separate research, published in September by accountancy firm KPMG and polling organisation, YouGov, one in five of adults aged between 25 and 34 are spending 60% of their monthly wages on the very day that the money enters their bank accounts.
As the report finds, the money is sucked up by the payment of utility bills, rents and other regular outgoings. For those who fall into this category, there simply isn’t money to save.
KPMG’s report says more young people are relying on credit to get by. This isn’t entirely borne out by the ONS data, which finds that levels of debt have actually fallen, with only 37% owing money compared with 49% a decade earlier. However, for those who do have debts, the amount owed, on average, has risen slightly from £1,800 to £1,900. However, this figure does not include student loans.
Against this economic backdrop, the big question facing cash-strapped millennials is how to strike a balance between planning for the future by putting money aside while also having enough money in the here-and-now to pay bills and (equally important) enjoy life.
The Savings Habit
Savings experts tend to argue that putting aside money is not something that simply happens, no matter how financially numerate an individual is. When money is tight, some kind of a strategy is required.
According to Freddie Cleworth, a Chartered Wealth Manager at wealth management company EQ Investors, it is important to set clear objectives.
“One of the first steps to managing your money wisely is to clearly define your goals,” he says, “Everyone is different. Step back and reflect on your short, medium and long-term goals such as buying a property, starting a family, and saving for retirement. “
But that is just part of the picture. For a cash-strapped millennial the hardest aspect of money management tends to be finding enough to put aside.
That’s particularly true if an individual’s bank account tends to look increasingly bereft of cash as the month progresses after payday. Saving, therefore, has to be something that is budgeted in – with a certain amount being set aside every month, even if it only amounts to a few pounds. Cleworth says that ‘ savings habit’ will pay dividends over the longer term.
“Perhaps the greatest benefit of developing a regular investing is that the money you invest now has longer to grow. The power of compounding means that you can get growth on your growth,” he says
However, Cleworth stresses that saving is not just about long-term objectives. He says it is also important to set money aside, simply for a rainy day and those unexpected emergencies.
”Building up a cash reserve for unexpected expenses protects you. Keep growing your emergency fund until you have accumulated three to six months of expenses held in cash deposits,” he says.
The good news for young savers is that there have never been more tools to help individuals manage the cash that runs through their accounts. In particular, app-based digital banks and financial services providers, such as Yolt, Monzo and Revolut have put money management their offer to consumers.
In addition, the arrival of open banking is allowing consumers to see all their financial activity across a broad range of third-party accounts in a single app. This makes it easier to track income and outgoings. Any money saved by better management can be diverted to savings. Barclays is the latest bank to adopt Open Banking.
But the elephant in the room is the economy. In the current climate, many people of all ages find it incredibly difficult to save and that situation may not change until wages begin to rise.