Thinking about retirement at the start of your career may seem pointless, but ensuring you’re prepared for non-working life is more important than you may think.
With the state pension age set to rise again, to 67 by 2028, higher life expectancy, and spiraling living costs, millennials (born between 1981 and 1996) are expected to work longer than their parents, and perhaps not have as much wealth to show for it.
Millennials, often dubbed “generation rent”, are far less likely to become homeowners given today’s market conditions. In London, for example, many are left with little at the end of the month after paying rent and enjoying the social side of city life. According to this report, commissioned by GoCompare: “millennials are understandably unable to afford to purchase property within the city and have to heavily rely on the rental sector.”
On top of this, millennials have to navigate retirement plans which have no immediate relevance to their everyday life or priorities. They’re often full of jargon, value poorly communicated and therefore thought of as an unnecessary outgoing. Also, if you’re one of the 182,000 (and growing) people on a zero hours contract as a millennial, you have no right to a pension.
So what can banks and Fintech providers do to reverse this attitude and convert millennials into financial aficionados?
The problem space
While banks offer a wide range of advice on how to manage finance, a recent study found nearly two-thirds (62%) of people have rejected guidance from high street banks, and instead turned closer to home. This is especially true of millennials with 44% of those aged 25-44 shunning advice from their bank vs only 32% of those aged 45-60+.
Financial planning for the future has an image problem, with many people believing it’s out of reach; reserved for high-net-worth individuals only. Millennials need to feel as if saving is intended just for them, bespoke vs generic. The financial ambitions of millennials are vast and require a whole different approach. Our advice is to speak to them and serve their needs as you would any other customer segment, even if that means starting from scratch and building new products.
Banks and financial providers should be doing much more to build trust and meaningful two-way relationships with their customers. At present, proactive advice isn’t often provided, unless requested and/or paid for. Given this, it’s inaccessible. Millennials might have savings tied up in ISAs or no immediate funds to dip into, but investing in their future and taking a cut once they’ve reached their end goal is a viable way around this. Access also covers the promotion of your advice and products i.e. are they easily understood by the millennial market, like Habito with their bold, no-nonsense approach.
- Lack of confidence
Providing more bespoke advice on everything from retirement planning to mortgages could alleviate mismanagement of money and restore customers with confidence. For so long, millennials have been left to work finances out for themselves. If banks could move away from serving assumptions and uncover the genuine needs of millennials, this would equate to improved decision-making, loyalty and therefore greater commercial return for the banks.
Meeting millennial demand
When designing for millennials’ financial future, it’s important to think about their wide-ranging ambitions. Help customers get a sense of their longer term financial ambitions or help shape them. Financial providers must build personal interactions into digital services to help understand if they want to retire at 55 and how they imagine their retirement going e.g. would they like to travel or live moderately? To provide the best customer experience here, it’s important to interrogate and serve customer’s financial ambitions.
Advice should then centre around reaching these goals. If they’re far-off, be personable and make them relevant to customers’ everyday life e.g. put £3 away each week (the price of your daily coffee) and knock six months off of your desired retirement age. When showing the benefits, ensure they’re articulated in an engaging and obvious way that grabs the users’ attention. Impactful data visualisation here can go a long way.
In parallel to this, there’s a growing ambition to invest in decentralised currency amongst millennials. While the temptation is to avoid providing support as a central bank, it’s worth thinking about the inevitable pay out should a crypto investment grow and need banking securely. Educating and helping customers realise their financial potential in this way will instil trust in centralised finance, often lacking in early investors of crypto.
Banks and IFAs can work to help millennials achieve any one of these goals by erasing the problem space. This might mean raising financial literacy, or applying the masses of data gathered to improve personal budgeting.
Banks have complete access to customer transactions, and the growing capacity to inject data throughout an experience. If let’s say, every few years a bank assessed the financial position to gain key data points e.g. at what age would you like to retire? – machine learning could calculate the sort of financial commitment required to achieve this, or remove the heavy lifting, and automate these contributions.
Reducing the amount of admin retirement planning requires may also help curb existing attitudes. Simplifying savings products, and relaying the value of signing up is within reach for every bank. Monzo does an amazing job of clearly communicating its features and listing the pros vs cons of taking out an ISA, for example. They don’t overload the user with information, rather the opposite. Word economy is championed, ensuring their app is well understood and made the most of. They have an extensive FAQ section, as well as access to round-the-clock customer support for any significant issues.
Open banking integrations could help everyone build brighter financial futures. Currently, a select few banks and IFAs have a view of someone’s entire finances. Unfortunately there’s little room for action within any one account other than static aggregation. In light of this, what if a bank amalgamated accounts including pensions, as well as ambitions around retirement? With this kind of detail and transparency, banks could help their customers reach their financial goals much quicker and, using algorithms and AI, detect unhealthy financial behaviour to stop people accumulating debt; another area where education could be vastly improved.
Financial providers and advisors have a duty to help millennials lead flourishing financial lives. But with decentralised finance gaining more ground and many of us (especially millennials) turning to investment services like Moneybox and Nutmeg who are enabling more of us to save, incumbent banks and traditional advisors ought to accelerate their efforts to support a wider range of financial ambitions.
To truly understand a customer, and serve their immediate and future ambitions, banks need to invest in and speak to their customers, and build a more accurate view of their financial goals. Once these goals have been unearthed, it’s then about helping customers reach them. With insight, design, AI and machine learning, banks and IFAs can do so with ease, and undo the incoherent retirement narrative.