13th July 2012
The relationship between Generation Y and financial markets was always likely to be a complex one. As the inheritors of the Baby Boomers they might have been forgiven for expecting similar wealth windfalls but instead are overseeing "the most serious financial crisis we've seen, at least since the 1930s, if not ever".
Undoubtedly gains in living standards of those born in the 1980s and 1990s have been much slower in coming than for the post-war generation. Much of this disparity can be explained by the increase in home ownership and the rapid appreciation of house prices between 1970 and 1990. The average house price in Britain, for example, rose from £5000 in 1969 to £60,000 by 1989 while home ownership grew from 31% in 1951 to 67% in 1991.
In contrast, Generation Y is facing rising unemployment, limited growth in incomes and a squeeze in housing affordability. Not only has this formed a practical barrier to investment – many young people simply lack the funds to invest or are already heavily indebted due to student loans – but it has also caused a degree of mistrust of financial institutions that must be overcome.
A study in the US by MFS Investment Management last year found that 40% of 18 to 30-year-olds surveyed agreed with the statement "I will never feel comfortable investing in the stock market" while 38% said that on their level of income saving consistently was not an option. Given that the unemployment rate among young people in Britain was 21.9% in March the situation here is likely to be very similar.
Yet while there may be many sound reasons to be cautious, an aversion to investing could force the already large generational wealth gap ever wider. Furthermore the prospect of a generation unwilling to put their money into long-term investment opportunities would be bad news for the future health of financial markets.
Unlike America, which provides incentives for companies to enrol their employees into 401(k) savings accounts for their retirement, Britain has been less successful in providing incentives for younger people to start investing early. Schemes such as the Child Trust Fund and the Savings Gateway aimed at generating a culture of saving met with limited success and have now been abandoned.
The government's latest project, the National Employment Savings Trust (NEST), has introduced auto-enrolment in a pension plan for employees on modest incomes. Yet outside of providing some relief to the burgeoning pension crisis, the Coalition has demonstrated relatively little interest in the current travails of Generation Y-ers.
There are a number of tactical reasons why they would choose a policy of passive neglect. Firstly, the younger generation have shown themselves to be less likely to vote in general elections than their elders. Figures compiled by Ipsos Mori in 2010 showed that only 44% of 18-24 year olds to voted in the election versus a 65% national turnout.
As such prioritising pensioners is a more profitable electoral strategy than trying to meet the demands of a younger group such as students. This at least partially explains why the increase in student fees to £9000 per year had an easier passage through parliament than pension reform has done.
Furthermore very few of the current generation of politicians were themselves born after 1980 and so have little vested interest in addressing the concerns of those who were.
Just as America is facing a fiscal cliff, however, are financial markets primed for a generational cliff? Mindful Money psychoanalyst Ken Eisold says:
"I suspect that Gen Y needs to do something with its money, albeit they may have less of it now than they or their parents did. My opinion is that the loss of trust in markets, and particularly the investment services offered, has eroded trust significantly. They see the news and probably suspected before that investment banks place their own portfolios first.
If so, then it would be every interesting if there were means to mine consumer opinion. If you could rate investment advisors and fund managers, just the way you can now rate hotels and airlines, perhaps the flood in information would restore trust and generate more interest in thinking about the issue."
Forcing younger people to save is unlikely to foster an understanding of the role that investment can play in helping them achieve their own ambitions and catch up with the Baby Boomers. As such it is as much an educational as a generational challenge.
Although they may not have access to huge sums at present, Generation Y will eventually become the focus for both financial institutions and governments. If they leave engaging with them too late then this aversion to financial markets may well become ingrained.
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