How young people can benefit from a nudge in the right financial direction
As we move past the furlough deadline and we take time to reflect upon the changes that have happened throughout the past 18 months or so, the true reality of COVID’s bruising impact on young people’s finances is now coming sharply into focus. Not only have the past 18 months been tough from a mental health standpoint, the long-term repercussions of ‘financial long-Covid’ for younger generations are just starting to take hold.
Let’s remember though, even before COVID-19, many young people were already struggling to achieve financial stability. According to a study from the Office of National Statistics back in 2018, more than half of 22 to 29 year olds had no money saved in a savings account. Even the prospect of buying a house has been unrealistic for a large proportion for a very long time. The pandemic has certainly accelerated the financial challenges many young people are now facing, but these issues are certainly not new.
However, one way businesses can make a real positive difference to young people during this period is offering better financial education and management tools. A recent study from Scottish Widows and the Behavioural Insights Team (BIT) shows people aged 22-29 are more likely to embrace responsible financial habits if they are given regular reminders and guidance. In fact, when they are consistently informed and educated about the benefits, twice as many young people would be more inclined to almost double their minimum pension contribution (from 8-15%). There is a real opportunity to improve how we educate young people and give them a nudge in the right financial direction.
We’re not starting from scratch either, a lot of work has already been explored in this area. The UK government founded a special Behavioural Insights Team back in 2010 to help improve more positive outcomes in social situations. It developed the idea of nudge theory to help people make better and more informed decisions. Small actions – such as reminders or guidance – were shown to have a substantially positive impact on the way people behaved.
There is now an urgent need to apply similar practices to financial education for younger generations. According to BIT, a prompt has the potential to help change the way people approach saving and spending. This is where advice and friendly reminders could really benefit younger workers, to encourage prudent financial behaviour. Our recent research showed 56 percent of 18-24-year olds are turning to high-cost credit once every six months or more. This lack of financial stability can lead to more stress and confusion, resulting in young workers making poor decisions that affect both their mental and financial health.
At present, less than a quarter of workplaces currently offer financial wellbeing advice, yet according to a recent study from the Financial Times, three quarters of young people would like to have access to an adviser to help them with planning and managing their finances. Employers are now in a much stronger position to help offer some of this support.
One such example of a solution that companies can provide to their workforce is Earnings on Demand, a technology that automatically tallies the hours employees are working, and gives them immediate access to the wages they have accumulated. The leading solutions are free to implement and frictionlessly integrate into the employer’s payroll system. Not only does this give employees the chance to access a portion of their monthly pay in real time, it also provides them with greater flexibility and liquidity to navigate financially challenging times of the year. This is especially prominent for young people, with over a third of 18-24 year olds admitting their need to rely on high-cost credit has increased during the pandemic.
In addition to the technology solutions, companies can also provide better financial management support, such as savings, rewards and budgeting tools. These can help young people better understand their finances so they can make decisions that make their money go further. Better financial fitness can alleviate stress, and ultimately lead to better worker engagement, productivity and performance.
As we reflect on a historically challenging period for all, and continue our return to a sense of normality, providing crucial financial support at this moment in time to young people could really make all the difference.
This was posted in Bdaily's Members' News section by Hastee .
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