My parents’ financial adviser has a Rolex. They think they’re paying him too much. But whatever they think about his watch, he gives them sound financial advice and they have a successful investment portfolio they control.
I cannot afford a financial adviser (or a Rolex) but I do want and need to invest. I write about investment for a living, which gives me a head start. But the majority of millennials I know have no idea where to begin and not enough money to pay an adviser to help them.
There is no doubting the need: we are a generation that must do more to save and that faces a higher bar to home ownership. We hear a lot about saving — for deposits, pensions or other long-term aims — but not enough of us are taking the plunge and putting money to work in the markets, which could net far higher returns than derisory rates on cash.
According to a new report from the Resolution Foundation, a think-tank, millennials today are worse off than the previous generation, suffering the effects of an earnings squeeze in the jobs market as they spend far more of their wages on rent and housing than their parents and grandparents did.
Its rather controversial answer was making a £10,000 gift to all 25-year-olds in a bid to tackle intergenerational unfairness and the difficulty of getting on to the property ladder. Described as a “citizen’s inheritance”, the think-tank proposed this should be funded by increased wealth and property taxes.
FT readers — likely to be at the older and wealthier end of the spectrum — were not impressed. In the online comments, many pointed out that a £10,000 bounty would push up house prices by boosting demand, while doing nothing to tackle supply.
A survey by the Intergenerational Commission last year found that the highest level of pessimism among the young concerned ever being able to own their own home. Second on the worry list was being able to live comfortably when they retired from work.
Our parents may have benefited from gold-plated final salary schemes, but most workers in their 20s and 30s will have money purchase or defined contribution schemes. We will need to save a lot more for the same standard of living in retirement. Yet investing remains an under-discussed and essential piece of the puzzle when it comes to boosting the financial health of Generation Y.
You might not have a lump sum of £10,000 to play with, but small amounts quickly add up. Someone putting £100 a month into the stock market for 10 years could, assuming 5 per cent annual growth, end up with a £15,848 pot, according to investment platform AJ Bell.
The problem is, 96 per cent of millennials do not have an investment portfolio and 62 per cent think investing is just for the wealthy, according to another survey.
Locked out from the gains enjoyed by earlier generations and thwarted in their hopes of buying a home, the young are gloomy. The Resolution Foundation found that those who were pessimistic about their chances of improving on their parents’ lives outnumbered optimists by two-to-one. When it comes to housing and pensions, the sentiment is even worse.
There are mental as well as monetary hurdles. Millennials often feel they lack the financial resources to seek financial advice but many also mistrust markets. According to asset manager F&C, almost a quarter of UK millennials turn to their mothers for financial information, rather than seeking it out elsewhere.
If millennials continue to see investing as something their parents and others do, they risk missing out on a vital part of financial security
My own mother has sensible advice on my finances, as well as knowing where I left my shoes, hairbrush and passport. But I don’t want to rely on my parents for help when it comes to my own money. Nor should my friends — many of whom consider saving for a deposit or taking out a cash Isa, yet feel investing isn’t for them.
Admittedly, investing carries some risk. Putting any money in the market feels terrifying when you don’t have much of it in the first place. But over the long term, small sums can build up, whereas leaving savings in low-paying cash accounts is reckless in a different way.
Investment supermarkets have work to do to make signing up quick and easy. Clunky processes involving paper utility bills and multiple passwords still dominate in many quarters.
Off-the-peg online services such as Nutmeg, MoneyFarm and Wealthify have taken strides towards iPhone-friendly finance, using low-cost exchange traded funds to build cheap portfolios of passive funds. They are often viewed as the millennial choice due to their low price tags and focus on online service.
But there is no reason why young people cannot put together more active portfolios of funds too. It is possible to put small amounts to work in the market at a time, if you’re prepared to do the research. Platforms such as AJ Bell and Interactive Investor allow investors to put in as little as £25 a month and portfolios are easy to view on your mobile.
If millennials continue to see investing as something their parents and others do, they risk missing out on a vital part of financial security. Buying a home is important and a £10,000 bonus would be nice, but stocks, shares and funds are crucial too — even if you can’t afford a Rolex.