ArchOver’s Angus Dent warns that savers are unlikely to benefit from the latest interest rate hike, although it is step in the right direction for the Bank of England. Read the full article here.
Tag: saving
MILLENNIALS OUT-INVEST GEN X AND BABY BOOMERS
Millennials aged 18-34 are out-investing Gen X (those aged 35-54) and Baby Boomers (aged over 55) according to a new study by ArchOver, the peer-to-peer (P2P) business lending platform. The report, Next Gen: Investors and Savers, explores the UK’s attitude towards risk and investment in the current climate. The research of 2,000 UK adults revealed that two-thirds (67%) see themselves as savers, using deceptively ‘safe’ banking options like savings accounts and pension funds to sit on their cash. The remaining third (33%) see themselves as investors, using riskier avenues like stocks, shares and property to grow their investments.
However, in a challenging economic environment, there are signs both savers and investors need to broaden their options and embrace alternative forms of finance to secure higher yields. The Millennial generation is often portrayed as less financially savvy than the generations who preceded them. The common view of this generation is that they lack the foresight to build up a portfolio of savings, investments and pensions and are being driven out of the housing market. Yet this is also a group that is confident in their own financial abilities and acutely aware of the need to make their money work harder. Of the 2,000 people surveyed, 35% of Millennials are investing or saving more than £250 per month compared to 26% of Gen X and 25% of Baby Boomers.
“Despite claims that Millennials are stuck in a financial rut, trapped by high property prices and low-wage growth, this is a generation that has grown up in an era of record-low interest rates and recognise the need to secure better returns on their disposable income,” explained Angus Dent, CEO of ArchOver. “On the other hand, those aged over 35 are at risk of missing out on new avenues offering higher returns. Gen X and Baby Boomers could benefit from following in the footsteps of Millennials and introducing greater diversity into their investment portfolios to seek out higher returns.”
Millennials, who have been early adopters of social media and have a strong familiarity with technology, are using this knowledge to identify new online tools or platforms to invest over. The research reveals that 59% of Millennials trust technology and use automated services to help generate the best financial decisions. In contrast, just 40% of Gen X and 24% of Baby Boomers claim the same. As a generation of digital natives who are strongly connected online with access to a wide circle of information, Millennials are relying on reference points from their peers. Overall, 41% of 18-35-year-olds get investment advice from their friends, family or colleagues, while older generations are more hesitant to talk about money. Only 31% of Gen X and 19% of those over 55-years-old would turn to their friends or family for advice.
Those aged over 35-years-old are also failing to take advantage of opportunities to diversify their portfolios and experiment with options offering higher returns. Nearly half (44%) of Millennials are investing using P2P and 57% are comfortable with alternative forms of investment that hold a higher level of risk. In comparison, just 16% of Gen X are investing using P2P platforms and only 29% are considering new or alternative investments with higher risk levels. For Baby Boomers, these figures sink even lower. Only 8% have invested over P2P platforms and just 14% would accept the higher level of risk that comes with new and alternative investments.
“Rather than admonishing Millennials for being irresponsible, the older generations could learn something from following the behaviour of a new generation,” concluded Angus Dent. “Millennials, who grew up during the deepest and longest recession in recent history are proactively looking for ways to balance security and risk in order to maximise returns but without putting their capital in too much danger. In an effort to secure higher yields, they are tackling the difficult financial climate head-on.”
We have entered a new age of investment. Millennials are leading the way in using their digital know-how to experiment with ways of growing their nest-egg and setting the pace. Now it’s up to Gen X and the Baby Boomers to decide if they want to follow their lead.
The research reveals that Millennials see opportunity where older generations see caution. Over half (52%) associate the words ‘risk’ and investment’ with opportunity, while 55% of Gen X associate it with ‘discomfort’ and 58% of Baby Boomers associate it with ‘uncertainty’. Gen X are too preoccupied with safety to take a new opportunity that could grow their money – 60% would only invest in traditional and proven investments, such as bonds, cash, equity and shares that have benefitted them in the past. While over three quarters (76%) of Baby Boomers make investment decisions based on the security provisions in place to protect their investments. However, investment habits need not be generational. If investors can find a comfortable balance between reward and risk then a bolder, more creative and diversified approach can pay dividends.
To read “Next Gen: Investors and Savers”, click here.
Inflation & The Plight of the Honest Saver
Anyone clinging to the belief that their deposits with the bank, building society or National Savings are holding their value must surely have received a wake-up call this week with the news that inflation hit 2.3% in February. At this level – the highest since September 2013 and already ahead of the Government’s 2% target for the year – the purchasing power of their money is going backwards in real terms. Furthermore, those looking to take advantage of the new National Savings Bond announced in the Budget only two weeks ago may stop to consider that the 2.2% on offer from next month for a deposit of £3,000 will effectively render them a loser from Day One.
As for those with money in traditional, easy access deposit accounts paying 1% or less, their cash is being eroded at an alarming rate of knots. And the use a tax-free ISA wrap does not even come close to bridging the gap.
The sad thing is that, while honest savers stoically see the value of the nest egg slip away by stealth, they are encouraged to believe that they are protected by the Financial Services Compensation Scheme (FSCS). They are protected, of course, if a bank or building society goes bust, but, since that will probably never be allowed to happen, the safety net is largely an illusion – and a cruel one at that given that the FSCS does not protect them from good old-fashioned inflation, which is the real enemy. Bank and building society depositors may not be losing their capital in one hit, but they are losing part of its value with the passage of each day.
The fact is that, even if they wanted to, the banks are virtually powerless to do anything about the plight of the saver – their access to cheap capital through deposit and current accounts to pass on to borrowers at astronomical rates of interest is what they live off. In modern parlance, they have very little ‘wriggle room’ because of their structure and overheads.
With interest rates glued to rock-bottom for the foreseeable future and inflation on the march, consumers are being forced to look at the various alternatives, such as P2P loans, where the market is young, ambitious and nimble. Risk is obviously – and very understandably – a big factor in many consumers’ minds, but returns of up to 8.5% with a good measure of security are not only available, but also sustainable in the current market. The advice must surely be to look around, research what is available, from whom, and to spread the risk by not putting money in one place.
In ArchOver’s case, the money will be lent out to ambitious, creditworthy SMEs through a robust risk assessment process. Surely, that has to be better than just sitting back watching the value of your capital gradually slip away.
Telegraph Hub: Eleven Top Trends In Managing Your Money
ArchOver has teamed up with The Telegraph to produce a series of articles to help educate investors on the UK Peer-to-Peer Lending sector. In a brave new economic and financial world, understanding different ways of managing your money is key to success. Peer-to-Peer Lending can help both individuals and businesses navigate a post-Brexit world, with the reassurance that it is a secured and effective method of protecting and growing your money.
From chatbot banking to peer-to-peer lending, this year has seen some major shifts in the way people are taking care of their money.
Thanks to landmark events such as the Brexit vote and an interest rate cut, as well as the constant evolution of new technology, 2016 has already seen some major changes in how we manage our money. Here are 10 of the top trends.
Power to the people
The disintermediation revolution that swept through media and publishing has come to financial services. More people are taking control of their money and their investments, and, in a few years, we’ll look back on paying fund managers, independent financial advisers and the like as simply ludicrous. This of course, is a technology-based revolution – one led, incidentally, by a 300-plus-year-old institution, the Bank of England. “Where music and publishing have led, finance could follow,” Andy Haldane, the Bank of England’s chief economist, has said.
Smartphone money management
Apps for banking and paying continue to grow in popularity. Barclays mobile payment service Pingit hit its millionth business transaction in January this year. Furthermore, according to the Centre for Economic and Business Research, some 20 million adults will use their mobiles to pay for goods and services by the end of the decade, according to the Centre for Economic and Business Research. At the other end of the scale, traditional bank branches have continued to close – there have been 546 announced in this year alone.[1]
Peer-to-peer lending and crowdfunding
The launch of the Innovative Finance Isa, which allows some crowdfunding and P2P investments to be held in the tax-free wrapper, puts this form of investing firmly in the spotlight – although because of delays in processing authorisation applications by the FCA, it may take longer than originally anticipated before many crowdfunding and lending platforms are actually available as ISAs.
Add to this the cut in Bank Rate and it’s clear that more people may be considering this as a way of earning income from their savings. Always check the security provided and how liquid this security is; the best platforms are clear on this and provide security on highly liquid assets – although unlike putting money in the bank it is not risk-free, so you may want to seek advice.
Global investment
Post-Brexit, the UK stock market has become a less popular place to be. The latest figures from the Investment Association[2] show that £1bn came out of UK equity funds in July – whereas global funds saw an increase in sales, suggesting that investors are looking further afield for returns.
Premium bonds
Sometimes the old ones are the best. The Government’s National Savings & Investments (NS&I) hiked the maximum amount of premium bonds that savers can hold from £40,000 to £50,000 in June 2015.
The result? A £14bn increase in premium bond investments to £61.8bn in the 12 months to March. The average return on the bonds is just 1.25pc, but with rates for bank savings at record lows, many savers are hoping to get lucky.
Glistening gold
Uncertain times encourage many to buy gold, which is seen as the ultimate safe haven. Economic events including the Brexit vote saw gold investors nearly double their money in the first seven months of 2016.[3]
Biometric security[4]
Fed up remembering all of those passwords and PIN numbers? They’re already becoming a thing of the past as banks take a more personal approach. Barclays has become the first bank in the UK to use voice- recognition software to verify identity for telephone banking, with HSBC and First Direct expected to follow.
New bank Atom is also offering facial-recognition software for customers, with RBS and NatWest allowing customers to log in to their banking apps with fingerprints.
Fixed-income funds
With the Brexit vote leading to uncertainty over the future, many are turning to fixed-income funds over equities for perceived security. The Investment Association said that corporate bonds, strategic bonds and global bonds were three of the five most popular sectors in July.
Tax-efficient lodgers
Sites such as AirBnB, which allow you to rent out rooms or your home as part of the ‘sharing economy’, have continued to grow in popularity after an increase in the Rent a Room scheme from April allowed all taxpayers to rent out a room for up to £7,500 a year free of tax.
Chatbot banking
With Facebook Messenger opened up to third parties, many banks are already trialling chatbots across the world who will communicate with you through your messaging platform. By the end of the year you might be able to pay your friends and check your balance through a chatbot on Messenger.
Negative savings rates
Are you paying to bank on the high street? Perhaps not yet, but the 2016 interest rate cut to 0.25 per cent means many of us are no longer receiving any interest on our current accounts. With Royal Bank of Scotland already charging some business customers for holding cash on deposit, the spectre of us all paying to bank is perilously close.
[1] thisismoney.co.uk
[2]theinvestmentassociation.org
[3] ft.com
[4] telegraph.co.uk/personal-banking