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Young people hopeful, but unrealistic, about their finances

Young people are increasingly hopeful about their finances but their optimism may be misplaced, a government survey suggests.

Young people hopeful, but unrealistic, about their finances

Young people are increasingly hopeful about their finances but their optimism may be misplaced as they fail to recognise how much they need to save.

Figures from the Office of National Statistics (ONS) show people aged 16-to-24 have become more confident about their finances.

The number of people in this age group finding it difficult or very difficult to get by fell to 8% in 2013/14 from 15% in 2009/10 and satisfaction with household income rose from 51% to 56% over the same period.

The ONS said the change was ‘consistent with evidence of an improving economic situation for young people’ following the economic crisis, which hit Britain’s youth hard with high unemployment.

However, younger people should not assume their finances are sorted, as figures from insurer Aegon reveal, millennials (those aged 16 to 34) are most optimistic about retirement but have hugely unrealistic expectations.

Those in that age bracket expect to retire at 63, a year earlier than the average age of retirement currently, and as much as seven years before the forecasted retirement for this group. The state pension age is set to rise to 68 by 2046, if not sooner and it is even expected to hit 70 for those in their 20s and 30s today.

What is most concerning is the amount of income that millennials believe they will receive from their pension when they reach retirement. On average they hope to receive £50,200 a year, which is over £35,000 more than the forecast pension income of £15,000 a year.

Despite the disconnect just one in five are concerned they may not be able to retire at their target retirement age and this may have something to do with a lack of engagement with their savings, with half of millennials never reviewing their retirement plan.

Steve Cameron, pensions director at Aegon, said millennials faced a different set of financial challenges than the generations before them.

‘Gone are the final salary schemes that many people took for granted in the past as their retirement solution,’ he said. ‘These have now largely been replaced by defined contribution pensions which place the emphasis on the individual to ensure they are saving enough.’

Although younger people have to take more responsibility for their pension saving, unfortunately they are not saving enough for a decent retirement and often do not have the safety of property assets to fall back on, like older generations.

Younger people should not use the retirement income enjoyed by older generations as a barometer for their own old age, as the gulf between the old and young is growing.

Figures from the Centre for Economics and Business Research shows total savings levels in the UK are far below their peak of 2009 and are expected to stay that way for more than 10 years.

After adjusting for inflation, current household savings levels will remain below the peak level of 16.3% of income in 1992, when those in the babyboomer generation were in their late 20s to early 40s.

David Whitaker of the Centre of Economics and Business Research said there was a ‘generational gulf’ in saving behaviours.

‘After expenditure, babyboomers on average have more income left over to save,’ he said, adding that nearly half save 30% or more of their income.

And the outcome isn’t going to improve for younger people anytime soon as Whitaker said households would ‘save a smaller portion of their disposable income than in previous decades’.

7 comments so far. Why not have your say?

Mark Stringer

May 13, 2016 at 15:00

Yep, gotta love those yoof!

Mind you it's all the fault of the baby boomers or so I'm constantly told. Fancy us doing without to pay for the essentials as we went through life..

I have four of the little darlings who fall into this "milliennials" (what timewaster came up with that) category and two are pretty switched on with regard to income in retirement as I tried to drum it into them as teenagers.

The other two, one is coming around to the realities of the future beyond work now that she and her boyfriend are in the process of buying an over priced box in sarf east London where when I grew up near there you couldn't have given it away.

My eldest boy went a bit pale when I suggested that as a Dr he would want around £60-£75,000 a year in retirement at age 65 ish (who wants an old Dr,like an old pilot in charge) and told him not to hold his breath for the state pension.

However having looked at the newish NHS pension scheme I think my eldest will struggle to achieve anything like the current NHS Dr's pension in retirement.

Now if a Dr can have a retirement income shortfall how on earth do the rest imagine they will fund that magic £50,000.

I know, become an MP!

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Rob Walker

May 15, 2016 at 11:00

Is anyone surprised that 'total savings levels in the UK are far below their peak of 2009' ? Do student loans have any part to play? How about house purchase and rental costs? How does an economy enjoying low interest rates and cheap oil still have such high levels of personal debt? (currently around 135% of gross annual income). Our government selects where it spends and where it saves and it leaves young adults far worse off than they were 20-30 years ago. This is the result of deliberate policies. Saving more to compensate for a lack of state pension support is not an option for most young families and to encourage them to subscribe to badly managed, opaque and greedy pension funds should not be recommended. And telling them what is 'right' when clearly they can't afford to save just makes them depressed and resentful.

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Mark Stringer

May 15, 2016 at 12:01

Rob Walker, I was in a heated discussion on another forum on City Wire about young adults and how we the wicked so called "baby boomers" have taken every thing apparently.

However we are all subject to the short termism that permeates this country because we have listened to the dross that perpetuates the closed shop of politics (along with the barrow boys in their shiny suits, big watches and big shoes) and never learnt a damned thing from 70 years of post war elections.

Divide and conquer is the tactic and we fall for it as a nation every time, only now we have the added apathy instead of fighting back by using our vote tactically to our advantage we stay away from the ballot box preferring instead to be led like sheep.

Isn't it because of the low interest rates that we haven't imploded yet.

We are in such an almighty financial mess that it is almost beyond comprehension stage managed by a tiny "elite" of parasites home grown as well as in the EU and further afield.

I've a very nice six bedroomed house in the south east that is slowly becoming a liability as who wants the huge upkeep and utility bill costs associated with such a house. Not that any now.

Many of the student loans will never ever be paid back (due to low wages)nor will many of the loans for general purchases due to the ease and acceptance of bankruptcy as a get out of debt free option.

We also have the entitlement aspect of many in society. How many people expected to take a foreign holiday, buy a new car, live in a house whose mortgage was 10 times their salary, walk around with a credit bought premium brand watch or the latest Apple offering when we were in our teens (yes, swap the Apple product for high end stereos, motorbikes and clothes), 20's,30's etc.

My personal belief is that if people lived within their means and not their credit limit with unrealistic expectations fueled by the swill bin rattling advertisers and property speculators, buoyed by the political lobbying machine and hacks, perhaps then consumerism would not now be the new religion.

The throw away society of the never ending credit card.

How many parents/grandparents have fueled the housing Ponzi scheme by providing deposits and how many have chosen to ignore their responsibility to use their vote to change the party system every five years.

Yes, politicians are to blame for many things, but no one marched people down to the shops to load up on things that are beyond their means or provided handouts to fuel property Ponzi schemes.

There are plenty of people in their 60's,70's,80's plus who struggle to make ends meet as well who have lived frugal lives.

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Rob Walker

May 15, 2016 at 12:13

Agree with all that Mark. I'd add that 'fueled by the swill bin rattling advertisers' brings out our greedy side and makes the have-nots even more depressed. However, to suggest that saving for a pension is a somehow virtuous habit plays into the hands of those corrupt pension funds skimming off their charges and commissions and never liable for any losses while the government approves of any scam that mitigates their own responsibilities to pay fair pensions from state funds.

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Mark Stringer

May 15, 2016 at 12:49

Rob, Yes, it is a terrible aspect of the financial services world that so many are ripped off by so few.

I know I come across as something of a heartless so and so, but actually nothing is further from the truth, as I do sympathise with so many in our society, but know that we can only affect change if we use our votes tactically as a nation.

Yes, we have had successive governments who have slowly but surely moved responsibility from them to the private sector while still pulling the strings.

Even though David Cameron promised in 2010 that the revolving door of Whitehall/private sector job hoppers would stop it is as prevalent as ever and how many MP's sit on the boards of financial services companies.

Younger people have a vote, yet their attendance at the ballot box seems to be as low as every other age group.

We need some honesty about how our state benefits (not sure why they are called "state benefits, as we paid for them) are funded to ensure a fairer society.

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May 16, 2016 at 08:18

Michelle, you might like to read this before your next attempt at social divisiveness: "Nearly 1m over-75s living in poverty"

And probably they don't have expensive mobile phone contracts

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Mark Stringer

May 16, 2016 at 08:41

Micawber, I wonder how many of the over 75's lived within their means all their lives without phone contracts, iphones, gap years, unrealistic student for worthless degrees........and how many of the over 75's do not claim any of the benefits they might otherwise be able to simply because they always made do.

I know many would attempt to say that that was simply because these things were not available, but many other things were like credit/HP or "on the tick or on the knock" as it was known when I was a nipper, but saved or lived within their means and refuse to claim benefits even now.

I have sympathy for those that get on with it and live within their means but am dismissive of this "cult of youth" obsession especially by the lazy media cut and paste merchants.

There certainly is an air of entitlement about the younger generation in my opinion, not all but very many, encouraged and allowed to manifest itself by lazy and gormless parents and reinforced by hacks and a Parliament that has abrogated its duty for social responsibility to YouTube, Twitter, TED and Facebook.

Their whole ethos is one of immediacy and disposability. I call it the "puff of air" economy made up of sod all squared.

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