PART 3 OF 5
In this, the third instalment of Tom Hibbard’s look at the issues contributing to a lack of engagement among Millennials with their pension, Tom outlines some potential solutions to the challenges the industry faces.
Despite the issues mentioned in the previous posts, there is a simple solution; all Joe Bloggs has to do is earn at least a median income, save 3x more than the average person, make all the right investment decisions throughout his life and make the correct choice at retirement. He will then have a 2 out of 3 chance of having an adequate retirement! Now, this doesn’t make the whole thing sound any more attractive, so what can be done?
Generations are not a science and there are no set boundaries for when the first and last Millennials were born. If we take an average of all the available definitions, we get something along the lines of people who are currently between the ages of 15 and 35. This poses the problem of not being able to apply blanket solutions due to the differences around where people are in their lives. Some are still in education, some in the first few years of work and others in the middle of their working lives (as we define it currently!). We therefore need to think about what we can do to help different inter-generational groups.
For those still in school, financial literacy education in some form is essential. Students clearly need to be learning about things like pensions, mortgages and credit cards to prepare them for their adult lives. Consideration needs to be given around how you incorporate this though? Should there be a formal test when there is already so much controversy about whether this works for all students? The ones that need this more than most, are the ones who are often already disengaged from the education system.
For those that are already in employment and don’t have the time to sit down and learn all things finance, a more innovative approach is necessary. Those that know me well will know my not-so-secret love for the power that Behavioural Economics possesses. Using the behavioural framework, EAST (Easy, Attractive, Social and Timely), gives us a means by which to apply these behavioural insights and then have a basis from which we can design some effective solutions.
In the next post, we’ll cover some reforms that I believe would go a long way to resolving part of the problem.
Looking for another entry in this blog series?