Thanks to the natural human inclination not to think too much about negative events, it is little wonder that so many twenty-and-thirtysomethings don’t really want to think about pensions and growing older.
“As a culture we don’t plan well for disasters or for things in the future that seem unpleasant or boring,” says Dr Sandi Mann, senior psychology lecturer at the University of Central Lancashire.
“We are brought up to deal with a problem when it looks like it needs dealing with, rather than heading it off in advance.”
“Young people are part of the Yolo [you only live once] generation – it’s about living in the moment and not worrying about the future,” she says. “As a culture we need to have a sea change in attitude and encourage everyone to plan ahead more effectively.”
Wilma Allan, money adviser and founder of the Money Midwife, says part of the problem is that pensions are packaged as safety for old age. “We don’t want to entertain the thought of getting old – it’s just not sexy to think about ageing at 20.” She says the concept of putting aside money in order to grow wealth would be a much more exciting message for younger people.
“Becoming wealthy in financial terms is a learned skill, open to all,” she says. It’s also about taking personal responsibility and not just hoping that “something will work out in the end”.
Michael MacMahon, a writer and speaker on money matters and author of Back to the Black, notes that some young people do want to save for the future, but they have a lot of other conflicting financial pressures on them as well.
“Young people are trying to save up for a house and they may also have debt from going to university or college. They see buying a house as an investment and something they aspire to.”
Also, there are huge pressures to spend rather than save. “All the advertisers in the world are saying live now pay later, have it now because you are worth it, make the most of deals available – and that is hard to resist even if you are not particularly materialistic. I contributed to a pension but only because it was part of my workplace scheme and I was in one by default. It was only later that I realised it was a good deal as the employer was putting in more money than I was.”
Yvonne Goodwin, independent financial adviser and founder of Yvonne Goodwin Wealth Management, agrees that much of what young people learn about money comes from their parents and their attitudes.
“Why do we let our emotions get in the way of sensible financial decisions? It’s called hyperbolic discounting – preferring immediate gain or satisfaction because we can’t perceive the benefit in the future. It’s too far away as a concept to engage with it. People are bad at deciding where and how to invest their money for the future because they can’t see a tangible benefit in it.”
Her advice is to ignore all the noise around you telling you what you should want and focus on your financial future: “Decide whether you want to live life to the full now and live your later years in penury.”
It’s the big delay between gratification and seeing the results during retirement that may be difficult for younger people to rationalise, says Alex Hedger, clinical director and cognitive behavioural therapist at Dynamic You.
“There’s a strong association between us doing something and the consequence that follows – together with the speed it takes for that consequence to happen. For example, many people feel more of a ‘pull’ to regularly spend money on something like the lottery, as the consequence, finding out whether they won or lost, is much quicker than using the same money on savings.”
There’s often no immediate positive consequence to putting money aside. “This means there is going to be less of a ‘pull’ to do it,” he says, adding that it also sits some way down many young people’s priorities. “Young people, in particular, will have many demands on their often limited financial resources. Many people can struggle to get the best balance between living for today and striving towards goals, hopes and needs for life going forward.”
The good news is that the government’s new Automatic Enrolment scheme for workplace pensions means that every employer must automatically enrol workers into a workplace pension scheme if they:
- Are aged between 22 and state pension age.
- Earn more than £10,000 a year.
- Work in the UK.
This could be a good way to start saving for the future at a low cost and with minimal administration. Find out more about the scheme by contacting your employer or looking on the government website.
Visit Lloydsbank.com for further information on retirement planning and a handy pension calculator
