A new report by Scottish Widows (SW) has found that savings habits among younger people are rather lacking when compared with older generations.
14% of people aged 20-29 are not saving any money, whereas 20% are saving between 0-6% of their wages and 26% are saving between 6-12%. That leaves only 40% of people between the ages of 20 and 29 making what SW deems to be ‘adequate’ savings (12% and upwards).
The figures differ for those over 30 where 59% of savers are saving adequately.
Scottish Widows outlines that the central problem with savings in the UK is that people simply aren’t saving enough. This could be attributed to the decline in defined benefit pension schemes and wider economic challenges. Though progress has been made, with record highs in the adequate savings category, according to SW, this is still not enough.
The lower level of savings among younger people is likely to be a reflection of differences in priorities. SW’s study found that 45% of younger savers (under 30s), the highest of any age group, are saving towards medium-term goals such as buying a house. 27% were found to be saving for the long term and 28% were saving for rainy days.
SW notes that the savings gap for young people “is perhaps unsurprising but nonetheless worrying.” Those under 30 are at a time where long-term saving can be hardest, yet investment growth can be advantageous. SW outlines how younger people are missing out on “the power of compound growth.“
They later go on to present four interlocking issues that have led to this general lack of savings made by younger generations:
- Most people remain disengaged with long-term savings – 38% of people are not aware how much they are saving
- Financial pressures – 28% of individuals earning between £10,000 – £20,000 say they’re not saving at all
- Self-employed individuals are being left behind – 41% of the self-employed aren’t saving at all
- Home ownership is a struggle for young people – 56% of 20-29 year olds say they have not saved for a deposit
Scottish Widows then set out a number of reforms that would benefit savers:
- Raise pension contribution rates – a new level of 15% to give people a chance to maintain their quality of life during retirement
- More flexibility between pensions and property – including the ability to use some retirement savings to help with the purchase of their first property
- Create better education and guidance – which includes information on the role of property and pensions in retirement
- Provide a hardship facility – allowing some savings to be used to avoid problem debt
- Ensure the self-employed have access to similar benefits as those in employment
Though there are marked improvements from last year’s report, it seems there is still a long way to go in terms of saving habits in younger individuals. As suggested above, there may even be a requirement for governmental reform in order to achieve the goals that Scottish Widows have set out.
For advice on how to develop savings plans to stand the test of time, don’t hesitate to get in touch.