Changing economic, demographic and even social trends will mean that individuals and families will need to increasingly adopt savings habits in order to cope with the changing demands that will be placed on them. Whether it be from the point of view of people living longer and having children later or from the pressures on the Government purse in terms of pensions provision and healthcare, savings will be an increasing necessity for everyone – and a big opportunity for financial services providers to tap into this need.
Only 20 or 30 years ago, life expectancy was much lower than it is today, full employment (or at least a ‘jobs for life’ culture) meant that people were more certain of being able to work until retirement. State pension benefits were more adequate in supporting people in their retirement.
Higher rates of inflation and even higher rates of house price inflation meant that housing costs were more affordable and the ‘nest egg’ that built up in terms of the value of your home (and the ability to borrow against its value) meant that for many the family home was not only a source of borrowing but also a means to boost pension income.
A smaller percentage of children chose to go to university and when they did, costs were borne largely by the Government and Local Authorities meaning parents didn’t have to cover the costs.
Today, people are getting married later, meaning they rent for longer and have less time to repay their mortgage. There is a continued trend of high proportions of children going to university despite higher fees and charges and people having children later in life meaning that the expense of university or helping with house purchase will come as income levels are falling or people retire.
People are living longer and inheritance isn’t passing on until later in offspring’s lives and leading to increased financial burden in terms of looking after elderly relatives and house price inflation is unlikely to reach same levels as previously experienced in the 70s, 80s and 90s meaning there will be increasingly less opportunity to release equity or to downsize.
From a pension perspective, the well documented pressure on State Pensions and falling annuity rates resulting from lower investment returns and from people living increasingly longer will add more uncertainty and pressure on living standards.
From a work point of view, whilst pension reforms mean that we are all expected to live longer, the pace of change at work will make it difficult to work until retirement age and increased levels of further education will mean average working life will reduce significantly. There will be a shorter working life – compromising earning ability. Greater competition for jobs will also suppress earning capacity.
With people living longer financial pressure on the ‘Sandwich Generation’ will increase as they are financially squeezed later in life to provide for their children and, increasingly, their elderly parents. Inheritances will be compromised and occur later.
People will have bigger financial commitments for longer meaning saving is becoming an increasingly important necessity given the changing economic landscape.
The outcomes will be increasing financial uncertainty and pressure on finances; increased exposure to expenses at times of income uncertainty; a shorter period of peak earning capacity; lessened opportunity to use property to cover expenses; greater financial responsibility for children and parents – potentially at the same time and also into retirement; and weakened ability to depend on State and private pensions as a source of retirement income.
From a Savings provider point of view, the opportunity is to move away from saving being something you should do to be able to buy the ‘nice to haves’ like a new car or a holiday or to have a nice little ‘nest egg’ to something more hard edged where saving is positioned as being something that people need to do in order to be able to live comfortably in the future and to be able to cope with all the pressures that are they are likely to confront in future life.
Emotionally people want to have financial security and the knowledge that they will be able to take care of their families – both their parents and their children. They also need to be able to save for their own retirement.
Whilst ‘saving’ is the vehicle by which people can achieve this, everyone will have different key drivers or imperatives to save, so whilst the savings vehicle might be functionally the same – demand needs to be created dependent on the imperative.
Different target markets will exist for each needs based proposition giving a broad base of appeal for the savings offer and opening up a range of opportunities
In summary therefore, the opportunity and to a large extent the duty on Savings providers is to alert customers that inertia is not an option. Doing nothing will most likely lead to future issues and truly engaging with their customers to help them understand the importance of saving whilst they have the ability and capability.