Closing the COVID-19 advice gap
By Simon Harrington, Senior Policy Advisera at the Personal Investment Management and Financial Advice Association (PIMFA).
Among the numerous research projects and reports on the impact of COVID-19, one finding stands out: the disproportionate impact of the pandemic on the younger generation. Young people are far more likely to have been furloughed or to have lost their jobs during the crisis. According to the Institute for Fiscal Studies, sectors that shut completely employed almost one third of staff under the age of 25 years.
For those emerging from school, college or university, the job market is tighter than it has been for many years and new entrants will find it harder to get their foot on the ladder. Figures from the ONS, for example, show a steep drop in employment and vacancy levels as the crisis took hold. This will have a significant impact on young people’s ability to save and to invest. Those without employment will miss out on employer pension schemes and those in lower paid jobs are unlikely to prioritise investing in a future that’s uncertain.
Even those with the means and motivation to save or invest, may find that rising living costs cause them to opt out in the short term. With the gap between investment level and outcome need or desire already high for the younger generation and pension contributions typically nowhere near enough to meet the retirement they envisage or want, the vicious cycle of lower wages and high or stable living costs won’t help.
This is the generation who won’t see the point in accessing professional financial advice, perhaps because they don’t have spare cash or income to save or invest. Or they may be put off investing by volatility in the markets, which is widely reported (but perhaps not fully understood) in the popular media. Obviously, there are young people who are already engaged with investing outside their pension schemes, who will see the downturn as a market opportunity, but for the majority, the impact of economic downturn is a higher level of risk aversity.
The challenge for professional financial advisers, for banks and for policymakers is to educate people to understand that risk isn’t inherently bad, and that investment is a long-term activity that allows for events like this to be played out – assuming investors don’t make rash or wrong decisions. Education is the key, purely because people are naturally scared or suspicious of what they don’t understand. Education will lead to engagement, providing an opportunity for professional financial advisers to provide the expertise, experience and reassurance that clients need.
Simon Harrington is Senior Policy Adviser at the Personal Investment Management and Financial Advice Association (PIMFA). Hear more from Simon on page 20 of the Summer 2020 issue of Chartered Banker magazine.