For the 20 something generation, known as ‘millennials’, they would rather spend their money now, rather than save for the future.
Robert Shihata, Wealth Manager at AAG, looks that the reasons why and the impact it could have.
“It’s easy to understand why millennials are not looking too far into their future. Graduate debt and a housing market that’s seems out of reach is making their current finances difficult. Let alone setting money aside for a retirement that is unfeasibly far away.”
The income of the average 22-30 year old remains 8% lower than it was in 2008, according to the Institute for Fiscal Studies. And, this is further eroded when you factor in today’s higher living costs. The Office of National Statistics report that nearly 25% of the average under 30 year old’s monthly outgoings are on rent – a figure which will obviously be much higher in London.
Not pretty reading for millennials, or their parents.
With reports that estimate a 25 year old would need to save around £800 a month over the next 40 years to retire at 65 with an income of £30,000 a year, it’s easy to see how demoralising retirement planning would be and, just how futile it must seem.
“It becomes an education piece,” Robert explains, “it’s important that millennials understand why they should not just be looking to the short-term and why starting early can actually be of benefit.”
Often millennials are unaware of the effect of compound growth, which plays an extremely valuable role in long term investing. Essentially, a small investment made now has more potential for growth than a large investment made closer to retirement.
Robert concludes, “You can’t simply assume that you’ll be able to catch up later in life.”
Whilst millennials would prefer to spend their money on a holiday they are overlooking the longest holiday they will have – retirement!