By Joe Cockerline
By now, you could forgive most people for being fed up of hearing that they need to save more – but that does not mean that the issue has gone away.
Levels of saving remain low in the UK, with 2018 research showing that those able to save have an average balance of £4,212.40. It’s not an unreasonable amount.
The reality is, for people struggling to make ends meet, saving is often not an option and those in the most vulnerable financial positions may need support. However, the question facing those who are able to save, and who may have moderate savings pots, is how do they step up from low-to-moderate levels of savings to becoming fully financially secure? It’s an issue in which the financial services industry has a vital role to play.
Key to encouraging people to make this leap is driving home the fact that they’re not entirely at the mercy of their circumstances – that it’s possible to take proactive steps to make their money work harder. The natural disposition of people to leave their savings in a bank account for years is understandable, and indeed may be the right choice for some. But ignoring the options available through investing and active money management could ultimately mean that many miss out.
Explore options beyond “traditional” savings
The obvious first step is to raise awareness of accessible, low-risk investment options. For those without tens of thousands to invest with an IFA, driving awareness of these entry level options is key – and may be the best place to start for many. The rise of peer-to-peer lending, for example, may provide an effective gateway for many to explore investment while seeing moderate returns – though these may be riskier than people think. Large banks and wealth managers may also offer low-risk investment packages largely based on fixed income options and passive funds.
A major challenge is simply to make people aware that these options exist. Though financial companies have made inroads with concerted marketing efforts, there’s still a long way to go.
Look beyond property
The oft-misguided idea that property is a sure-fire way of seeing your money grow, while not necessary false, may well be holding back savers. Buying a house is too often regarded as the Rolls Royce of investment decisions – whether this be purchasing a home with a view to seeing long-term growth in property value, a renovation or modernisation project followed by a quick sale designed to offer quick returns, or a house purchase with a view to renting and securing an additional income stream.
House prices continue to rise, but growth has slowed since 2016 and uncertainties ahead of the next downturn, coupled with ongoing Brexit concerns, mean that property is certainly not a 100% safe bet. Indeed, viewing a property as an investment may fail to appreciate the restrictive nature of buying and selling properties, not to mention significant changes in property taxation. While buying a house may be the right option for some, companies also have to reach people who don’t have enough for a deposit but still have savings. Indeed, with house prices historically rising faster than savings rates, it may well be that house buyers need to proactively invest just to build the deposit to purchase their own home.
Technology and accessibility is key
Online and mobile banking is now the most common way we manage our money – but access to investment options has not yet (fully) had the tech treatment. The notion of visiting an IFA to discuss your investments may appeal to some, but the reality is that most people can’t afford the fees for professional advice. Again, this is an ongoing and long-term process, but dragging the traditional wealth management industry into the tech age could not be more important.
Some tech players, such as Nutmeg, have broken into the mainstream with their accessible and simple offering and others are attempting to follow suit. Large financial institutions spend millions on tech innovation and it is vital that this trend continues, though not in isolation. When supported by a change in perceptions and awareness, tech stands to be the gateway by which many are likely to start thinking seriously about investing and fully realising the benefits.
Drive attitudinal change
Underpinning all the above is the need for a simple, though very challenging, change in attitude. In essence, the majority of people may well think “I’ve heard about investing, but it’s probably not for me.” Of course, nothing could be further from the truth. Gone are the days of investment being solely the preserve of the City.
The fact is that investment is more accessible to the average person than any other time. A basic understanding of risk and a small amount of technical knowledge is all that is needed for the average person to start taking proactive money management decisions. It may be that auto-enrolment, which means that workers save into a pension automatically, may provide the spur for encouraging people to engage more with investment. However, early signs indicate that most people just leave their money in their company’s default fund and never consider the investment options.
There is plenty of appetite out there among people to see their money work harder, but driving a change in attitude is fundamental and requires a uniform effort from across the industry. The fact is that people stand to benefit from long term investing and should not be held back as a result of a lack of awareness or understanding.