Dawn Hyams: Millennials - willing to learn but nowhere to turn

In a connected age, where the quality of the customer experience has become increasingly important across sectors, the financial industry faces a challenge - though also an opportunity - in engaging the next generation of clients.

Many other consumer-focused sectors have been developing greater client interaction and engagement through digital channels and the financial organisations that do this best will likely benefit most from an increasingly digitalised client base.

Recent consumer research with more than 2,000 end-investors, conducted by The Wisdom Council and delving into the state of UK pensions, recently revealed a disturbing lack of financial knowledge among millennials, with many far more willing to have a punt on cryptocurrencies than invest in a long-term investment product.

The research revealed, however, a lack of interest is not the issue - almost all of the younger savers we spoke to knew they needed to do more in terms of long-term saving to plan adequately for the future.

More worryingly, the problem seems to be they do not know where to turn - with the group preferring to trust their own research or, along with investors of all ages, that of well-known media experts such as Martin Lewis, over and above financial advisers. While millennials do note the need for advice, they largely feel it is not worth it ‘at their age'.

Financial education from an early age would help though, disappointingly, the latest consultation from the government on compulsory elements of Personal, Social and Health Education does not include financial education - it was argued this is already covered in the maths and citizenship requirements to teach children "to manage their money well and make sound financial decisions".

It is clear from the research the investment firms and advisers that are able to shake up the way they engage with millennials, providing them with the financial support and education for which they are so clearly crying out, will be best placed to engage and acquire the next generation of investors.

What pension?

Top-line pension participation among millennials has significantly benefitted from the introduction of auto-enrolment in 2012, but our research shows many still do not know where their money is going. One in four millennials has a pension but one in 10 do not know if they have one or not.

Perhaps more worrying is the fact 40% of the millennials we spoke to believe they have a defined benefit scheme when, in reality, Office for National Statistics data suggests fewer than one in five have an element of final salary pension. Meanwhile, a fifth did not even know if they had joined their workplace pension.

Unsurprisingly, this vast knowledge gap is accompanied by a stark lack of awareness around the realities of retirement funding. Most millennials see age 60 to 90 as a time to start a second career, go travelling, see their families and take up hobbies- yet do not consider how they will fund this. Care costs in old age are not even considered.

Our qualitative research revealed most millennials feel as if they are coming in halfway through a conversation when they try to engage with pension communications. The overuse of jargon means they do not understand, what the industry might consider the most basic of concepts - indeed, the word ‘pension' means very little, instead creating a general feeling of helplessness. As one respondent put it: "They're an alien thing pensions. You pay that money, and you get it when you're older. Other than that I don't know much more."

Risky business

Another problem was an unwillingness to take on risk. Although most millennials understand more risk usually results in a better return, an overwhelming fear of ‘losing it all' repeatedly leads them to gravitate towards lower-risk areas, such as cash and property.

Rather alarmingly, one in four members of so-called ‘Generation Rent' we spoke to expect property equity to boost their income in retirement. Yet millennials in the greater London area were still renting and hoped to own a property in their early-30s - though realistically felt that, with house prices high in and around London, this might be late-30s if not early-40s.

Ironically, we found these same risk-averse millennials are also piling into highly speculative cryptocurrencies. Half those surveyed said they had invested in some form of cryptocurrency while the other half knew someone who had.

The reason for this is that they relate to the digital economy and find the story compelling. As one respondent who invested several hundred pounds in bitcoin put it: "What's the worst that can happen? It's just equivalent to a night out." This clearly demonstrates a poor understanding of the risk-return dynamic.

Lack of trust

Encouragingly, many of the millennials we spoke to were highly aware of a need to improve their financial knowledge, with many acknowledging that professional help would be the best solution going forward. Indeed, more than two-fifths (43%) said they would pay for advice - a more positive response than received from both generation Xers and boomers. Just one in three said they would reject ever paying for help.

So, with nearly 70% admitting they have never paid for financial advice and 78% of those that had paid only doing so for one-off advice, what exactly is stopping them from engaging with the industry?

Many believe that ‘at their age' the associated cost of going to a financial adviser would outweigh any potential benefit they might see from it. This group would much rather ask for advice from friends and family on crucial financial decisions.

Similarly, a feeling of reliance coupled with an ongoing negative view of the financial industry has also created a deep mistrust of financial advisers among some millennials. One respondent said, for instance, she felt advisers could give bad advice and were only in it to ‘make money out of you'. As a result, our millennials were far more receptive to robo-advice, which they view as a low-cost, unbiased service.

What's the answer?

Millennials are demonstrating a clear awareness of the importance of long-term saving, and their desire to learn far surpasses that of older generations. As it stands, however, they are turned off - by the way the industry engages with them and the language it uses - from doing anything about it. Their knowledge and awareness is suffering as a result.

The investment and advice sectors must stop putting millennials in the ‘too difficult' box - after all, in a few years' time, these savers will be their core clients.

By making the way they educate about pensions and risk more compelling and personal, introducing product innovation, perhaps introducing flat fees (to a ‘price-compare' generation), they can build trust and stop millennials from being under-funded, under-risked, and underwhelmed.

Dawn Hyams is head of investor insight at The Wisdom Council

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