The Financial Times caused a bit of a stir among millennials (25 – 35 year-olds) this week, following a look into their finances and how they will be able to fund their retirement.
The piece, which suggested that millennials would need to pay £800 a month into their pensions for a comfortable retirement, went viral across social media and generated ‘more Twitter sass and cat memes than any piece in the history of the FT’ according to a follow-up piece on Friday.
The financial challenges facing millennials
But in fact, the FT’s story was a fairly non-judgmental look at the difficulties facing today’s 18- to 35-year-olds – from employment prospects damaged by the financial crisis and ensuing global recession, to the increasing problems many are having getting on to the property ladder.
As is par for the course on social media, the “£800 a month” figure was taken somewhat out of context: in fact, this is the average monthly saving people need to make over their lifetimes to generate a comfortable retirement. More realistically, workers would save less in their 20s than they would in later decades as their salaries rose.
You might not have £800 a month, but every little can help
Nevertheless, younger people can’t afford to bury their heads in the sand when it comes to money matters. So what practical steps can they take to give themselves more solid financial foundations?
1. Take advantage of the sharing economy
Twentysomethings might not own their own home – so they won’t be able to make extra cash renting out a room, say.But they might be able to pay less for holiday accommodation by using the site or one of its rivals.
If you have your own car, you can rent out a passenger seat on any long journeys you’re taking through of Liftshare.com or BlaBlaCar.com. If you don’t have your own motor, register as a user on either site to cut your transport costs.
2. Prioritise your debts
Indebtedness is common among millennials so it’s important to deal with your debts sensibly. This means identifying the most expensive forms of borrowing and trying to pay those off first.
Overdrafts and credit cards are likely to be the priciest so clear these first, whereas the interest rate on your student loan should be pretty low – there’s not much point trying to clear this faster than you have to.
3. Find a better home for any savings
You might not think you’ve got enough money to start a pension, but if you have cash in a savings account, it’s worth trying to get better returns. Interest rates in the UK have been low since 2008 and most deposit accounts barely beat inflation.
Peer-to-peer lending is a relatively new form of finance and involves customers lending their spare cash to other individuals. By cutting out the banks, rates for both parties are much more attractive.
There’s more risk than with a savings account, but your loans are spread among a number of borrowers to reduce the impact of any late payments.
4. Get free pension cash
You might not have £800 a month to save, but it’s worth joining your company’s pension if it offers one: most firms add money of their own to any contributions you make, so if you don’t sign up, you’re missing out on free cash.
And remember, the earlier you start saving, the longer your money has to grow.
With peer-to-peer lending your capital is at risk.