Millennials receive too little income to save for their future

Credit: Evgeny Atamanenko/Shutterstock.com

This, at least, is the view of the Pensions and Lifetime Savings Association (PLSA), who've just announced research defending 18-35 year olds against the charge that they are irresponsible with their own cash.

The PLSA argue that, on the contrary, young people want to save money. It's just that low income jobs and high rents mean they have little left to put in a savings account or pension pot after they've covered all their expenses.

While this paints a grim picture for the UK's younger generations, the PLSA's report arrives at a time when there are an increasing number of options for those on low incomes who want to put some money away for their later years.

A secure future

Most revealingly, the PLSA's research found that, beyond ever-mounting student loans, most 18-35 year olds aren't accumulating debts.

Instead, a third are saving money just in case they need an emergency pot of cash, while another third are saving up towards some larger, less impulsive purchase, such as a holiday or a car.

Such findings led Joanne Segars, the PLSA's Chief Executive, to comment, "18 to 35 year olds are no different [from] many people - they want to save for a secure future, but short term financial pressures get in the way."

As for these pressures, they've only increased since the global recession.

For example, research from the Institute for Fiscal Studies has shown that the income of the average 22- to 30-year-old has dipped by 8% since 2008.

By contrast, the average cost of renting a home in the UK has skyrocketed by 36% over the same period of time.

When these sobering facts are combined with the knowledge that tuition fees rose to £9,000 a year in 2012, and that some students leave university with debts of more than £40,000, it suddenly becomes easier to see why millennials have such a bad (if misunderstood) reputation regarding money.

Indeed, Alistair McQueen - the savings and retirement manager at Aviva - agrees, saying that "it is understandable that the need to save for retirement can feel like a luxury few can afford."

However, surveys conducted by Facebook nonetheless reveal that 86% of millennials are at least trying to save for this particular luxury.

And while they may not have much to put away, they still preserve a greater proportion of their earnings than the rest of the population. The National Savings and Investments Quarterly Savings Survey revealed that in 2014/15 16-34 year olds saved 9% of their income, compared with the 8% put aside by the rest of the population.

What's more, a 2015 survey of 18,000 final year students found that graduates who had to pay the full £9,000 per year in tuition fees were in fact more focused on securing a better paid job than students who didn't face such steep costs.

In other words, even though they had technically spent more and were more in debt, they were more driven towards finding a well-paying job and being more financially responsible.

This confirms the PLSA's research, and at the same time underlines how a remarkably tough economic environment is holding back a generation who are more determined and responsible than many people give them credit for.

Micro-investing

However, even if many 18-35 year olds are suffering because of low incomes and high expenses, there are a modest number of options for them to consider if they want to save for their more mature years.

In particular, one emerging possibility is micro-investing. Enabled by such apps as the recently launched Moneybox, these enable low-income earners to invest small amounts of money when purchasing items with their bank cards.

They work by rounding up the cost of a purchase and then deducting the actual cost from this new total. The difference is then invested in the stock market, which can sometimes - but not always - offer better returns than a current or savings account.

There are also banks which already offer "rounding up" services, such as Lloyds "Save the Change" app. However, unlike Moneybox or the True Potentialmicro-investing app, these siphon money only into a current account, rather than into an index-linked investment fund.

With the True Potential app, for example, it's estimated that a saver who put away £100 a month between 1996 and 2016 would've seen the stock market earn them just over £41,000 (before fees) from a total outlay of £24,000.

This may not be a massive amount, but when 18-35 year olds are struggling to save anything as it is, it could make a tangible difference to their future.

Given that millennials are considered "digital natives", it also makes sense that digital technologies should be offered like this as a way to ease their problems, since such apps as Moneybox and True Potential may appeal to them more than more traditional routes into investment and saving.

Still, these apps have only recently begun entering the marketplace and as yet remain largely unproven.

What isn't unproven, however, is the determination of millennials to make the best of unfriendly economic circumstances.