In this week's blog: Find out the differences between younger and older workers when it comes to (workplace) savings
Ever since auto-enrolment, Tom has been putting money into his pension every month.
But he also has a savings account, which he tops up whenever he has some spare cash. He is planning to use the money on a new kitchen, eventually.
He really wants to improve his lifestyle.
Unfortunately, he doesn’t top up the account every month. He likes spending on “nice to haves” – after all, what would life be like without the occasional luxury?
And he worries that his spending gets out of control too often… Which is why his kitchen has not yet been upgraded.
Can you guess how old Tom is likely to be?
We recently surveyed 2,000 people about their approach to money and savings.
And while there were many more similarities than differences, those under the age of 45 and those over 45 sometimes displayed very distinctive attitudes.
Understanding the subtleties can be important, if you want to encourage your staff to save more.
So, how old is Tom?
Of course, there are “Toms” in every age bracket.
But our research showed that his financial behaviour was more typical of people under the age of 45.
Younger respondents to our survey were less financially disciplined.
Even though they were far more likely to have credit card debt or a loan other than their mortgage (59% of under 45s to 42% of those over 45), they were much less likely to prioritise paying off debt (49% to 59%).
And while, of course, just getting by day-to-day would be a priority for most people, younger people were also more likely to spend money on buying new things (50% to 40%) and far more likely to spend on “nice to haves” (42% to 23%).
Why? The most common answer was “to improve my life” (29%), while older people were more likely to spend on luxuries in order to do something nice for someone else (30%).
Perhaps as a result, younger people were more likely to admit buying more than they can afford (54% to 30%) and to feel like their spending was out of control (16% to 9%).
When it came to savings, rather surprisingly, more younger people in our survey were actually putting money into a workplace pension (71.6% compared to 65.4%), perhaps because the older contingent had opted out as they already have workplace pension provision from previous jobs, or have other forms of saving.
And – going against conventional wisdom - the two groups put aside money for other purposes at remarkably similar rates. 52% of older people saved regularly, compared to 53% of younger people.
But why, and how, they saved differed.
Younger people were more likely to save for a specific objective, like a house or holiday (23% to 19%). They were less concerned with long-term security (31% to 36%).
They also preferred to save in bigger lumps (43% to 31%), rather than making steady savings payments – perhaps because they are saving when the money is available, rather than on a consistent basis.
What are the implications for your company?
We all know that if you want to encourage your employees to save more into their pension, you have to communicate to younger people differently than to older people.
When retirement is four or five decades away, you will have different financial priorities to someone whose retirement is a mere 10 or 15 years away.
But this survey shows that you may need to make some other changes too.
The younger people we spoke to are not against saving – most of them try their best to put money away. But they are still more likely to save for short- or medium-term needs, as and when they have the money to do so.
So perhaps, in addition to your workplace pension, you could consider offering employees the option to pay into a workplace ISA. This could particularly appeal to younger employees as it can be used to save up for shorter term needs. Of course it would be essential to ensure employees understand the differences between both products and their respective merits.
Someone like Tom would probably love to have the facility to make automatic payments towards his home improvements, or other specific goals.
It’s true that this money will probably never be put towards Tom’s retirement.
But it is likely to embed the habit of saving…
And prove its value.
And we know that people are more likely to save for their pension if they have good saving habits overall, because saving becomes a normal part of their financial behaviour.
When retirement is a little closer, all that is left for you to do is to persuade employees like Tom to save for the right thing.
PS: there were many other fascinating findings in our survey, particularly around how younger and older people want to receive their pension comms. Check them out here.
Source: Punter Southall Aspire research, July 2018