The truth about young savers

Daniel Lane

Daniel Lane - Fidelity Personal Investing

12 October 2018

53% of the UK’s under 30s have no savings in a savings account or  ISA, up from 41% a decade ago. That comes from a new report this month from the Office for National Statistics, highlighting the financial challenges facing young people today. 

So, is it a case of general je m’en foutisme among the under 30s or just bad savings habits? Neither, according to the report - for this cohort it’s more a case of having to pick their financial battles.

While short-term savings have taken a hit, young people are leading the way when it comes to getting ready for retirement. Flying in the face of pervading attitudes that they are among the nation’s worst savers, the ONS report reveals the rate of workplace saving among under-30s is outpacing all other age groups - more than doubling from 35% participating in 2012 to 79% in 2017.

The reason for such a gulf in attitudes towards short and long-term saving emerges when we look at two key factors affecting this generation: home ownership and life expectancy.

Bricks and mortar

Those in the 22-29 age range are 10% less likely to own a home compared to ten years ago. One of the most telling measurements in figuring out why the rate of change is in the ratio of earnings to house prices over the years. In 1996, the average London home commanded 4.5x the average salary; today it has reached 14.5x, outlining the uphill struggle young people are facing in the housing market.

There comes a tipping point when goals turn from unrealistic or difficult, to impossible and that’s what the housing market has become for many in this group. With short-term goals seemingly out of reach, or taking much longer to achieve, young people are turning to making sure they aren’t left out in the cold when they retire.

However, the knock-on effect is that those still saving for a property run the risk of draining their accounts for a deposit at a much later stage than their parents, and so stopping the snowball effect their savings have built up. They might not be able to help it but calling a stop to the compound parade is extremely damaging to savings of any kind. Leaving at least some money in there to keep generating growth can really help.

Increased life expectancy

We are living longer. With every third child born in 2012 expected to live to 100, long-term savings need to be working hard and the under 30s know it. We are already talking about a third age after retirement, which may last 40 years, and it looks like the cohort is doing what it can to fund it.

The biggest advantage to savings here is time, and far from displaying ambivalence, young people are doing the things they should be doing, and are doing more of it than their parents - because they have to.

What young people can work on is getting their shorter-term savings and investments ticking over. It’s easy to say because if they could then surely they’d be doing it already but the fact is that this generation simply has to do more with less - and if that means owning a home, they need to start early and save often. 

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. For ISAs tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.