It’s no secret that today’s young people are finding it hard to put money away for the future: with the housing market pushing rent bills ever higher and wages increases often failing to match inflation, many say they just don’t have the income to spare at the end of the month.
But another factor that’s complicating matters is the simple lack of financial education in British schools – and wider society as a whole – in recent years.
In fact, research by the Yorkshire Building Society found that only roughly two-fifths (42%) of ‘generation Z’ respondents (16–27 year olds) said they’d been given financial education during their time at secondary school – even though it’s been an official part of the National Curriculum since 2014.
In other words, despite the clear need for direction and obvious real-world benefits, a majority (58%) of young people currently receive no formal financial education. And that’s a problem.
Gen Z’s financial competency challenges
All the stats point to the fact that we’re currently failing to embed cash competency as a core life skill among young adults.
More than one in three Gen Zers (39%) say they simply don’t know enough to make important financial decisions for themselves – compared with just 22% of the general public – leading to some concerning trends.
For example, under 30s are more likely to report being in some form of debt compared to other generations, whilst more than a third say they’re falling behind or missing at least one repayment in the year.
What’s more, Gen Z are also more likely to be caught out by identity theft or internet scammers – suggesting that despite their significantly higher ‘screen time’ compared to their parents, too many don’t know how to surf these kinds of online environments safely.
Gen Z and ‘inactive saving’
The YBS data also indicates that those Gen Zers who can afford to save do so ineffectively. Nearly half (or 1.4 million people) of young savings account owners are reportedly ‘inactive savers’ – individuals who take a passive approach and don’t actively look for the best interest rates to maximise their returns – compared with just 20% of the wider population.
And even more frustratingly, another million or so 16-27 year olds who attempt to save only ever store their funds in a current account, effectively forfeiting the interest they could be earning from more competitive savings accounts.
The findings note that encouraging Gen Z’s to take a more proactive approach to their savings would enable up to 800,000 of this cohort to begin seeing the benefit of higher interest payments – potentially netting them a combined £226m in interest annually.
So, how can they start?
Where to begin ‘active investing’
Look further than your current account
If you’re wanting to get serious about putting your money to work instead of having it gathering dust in the bank, the first step is to look into the higher-rate saving options available to you.
For example, Individual Savings Accounts (ISAs) are a great way to invest without paying tax on any interest, dividends, or capital gains. The main types are:
- Cash ISAs: Similar to a savings account but with tax-free interest – so they’re a step up from a current account without incurring much more risk, but interest rates are generally low.
- Stocks & Shares ISAs: These types let you invest in stocks, bonds and funds within a tax-efficient wrapper. Over time, this can offer higher returns than cash ISAs – though they do come with more risk.
- Lifetime ISAs (LISAs): Designed for first-time homebuyers or retirement savings, the UK government currently adds a 25% bonus on up to £4,000 saved per year, which can significantly boost your savings.
You can also explore Regular Saver Accounts, which often feature higher interest rates but come with a limit of how much you can deposit each month: ideal for building the habit of regular saving!
There’s also Exchange-Traded Funds (ETFs), which give savers an easy way to get involved in the stock market through pre-defined baskets of bonds you can buy or sell in the same manner as a single stock.
A more niche option is Fixed-Rate Bonds, which offer higher interest but require you to lock your money away for a set period – usually one to five years – which could be of use if you have savings you’re happy not to touch again for a while.
Be proactive with your pension
If you can, start making regular contributions to your workplace pension scheme on top of the monthly minimum – especially if your employer offers matched contributions, as you’ll be doubling your investing power at no extra cost.
For self-employed people or those wanting to save more, meanwhile, you could consider a personal pension. Contributions are tax efficient, and you’ll be given relief on your deposits up to certain limits.
Finally, those who want to take a DIY approach to their pension investments could look into setting up a Self-Invested Personal Pension (SIPP). This enables you to choose where your money is invested, offering the potential for higher returns but also increased risk.
Whichever route you choose, the sooner you get cracking with it, the better.
Make use of online investment platforms
Today’s young people have more online resources available to them than ever before – so take advantage! So-called ‘robo-adviser’ services like Nutmeg, Moneybox, and Wealthify offer managed investment portfolios that are easy to start with and handle your investment choices based on your chosen risk appetite.
You can also use platforms like Aviva or Vanguard to invest in a range of funds, shares, and ETFs: taking matters into your own hands does require more involvement (and time invested in learning) but can lead to better returns over the long run.
Use technology to optimise your savings
To keep on track and remove willpower from the equation, automate whatever parts of the process you can. For instance, you could set up standing orders to automatically transfer money into your savings or investment accounts each month.
There are also smartphone apps like Moneybox that round up your purchases to the nearest pound and invest the spare change into a diversified portfolio. These are little additions that you’ll hardly notice, but they can gradually snowball into making a big difference if you stick at it.
Note:
The price and value of any investments and any income from them can fluctuate and may fall, so you may get back less than the amount you invested. Rules for Lifetime ISAs may differ.
This information is for education purposes only – it does not constitute financial advice and should not be acted upon without taking professional advice.
If yourself or a loved one are looking to take control of their finances, speaking to the experts can give you invaluable direction on making the right decisions for your goals.
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