Family & Individual Protection

Impact Investing

You don’t need to go far to find an article centering on the harsh financial realities for Millennials.

Time and again we hear those born between 1981 to 1996 are the unlucky generation entering into a time of job insecurity, stagnant wages and an inflated housing market.  With inflation now at its highest rate in nearly 40 years, the cost of owning a home becoming increasingly expensive and student loan debt preventing many from saving for short or long term financial goals, the cards seem stacked against Millennials when it comes to making the most of their finances.

The property market is fraught with issues. If not caught out by offers flying over the home report value on closing day, then the aspirational are powerless to rising tax levies, such as the Land and Buildings Transaction tax which replaced UK stamp duty in Scotland and resulted in a higher tax for home purchases over £325,000.

Further recent statistics point to the glaring fact that one in three Millennials will never own their own home, while most will take-home salaries that are disproportionately low compared to the UK average and around 20% lower than baby boomers’ salaries were when they were the same age.

However, Millennials have a secret up their sleeve…they have been found to set aside more into savings accounts than any other generation.  According to research by Charter Savings Bank, Millennials are getting on the savings ladder as early as possible, the benefits of which will provide a huge impact on their wider financial planning.

Such “super savers” aim to get on the property ladder and build their wider pot.  Now if we were to marry the concept of a long investment time frame, due to their age, with their saving ability, as we see from recent studies, we can see a marriage made in heaven….

A huge factor for such utopia boils down to 2 simple words – compound interest.  Compounding is when you earn interest on the principal amount you initially invested and also earn it on the past interest you’ve already accumulated.

Say you invest £100 in an account that earns 10% annual interest.  After a year, your account will return £110.  In the second year, that 10% interest is applied to the full £110, giving you £121.  Each year, your interest rate applies to that previous year’s total, which can yield impressive results over time – after 10 years, that initial £100 will be £259.37.  Invest £500, £1,000 or £5,000 at the outset, and compound interest quickly becomes your friend.

In contrast to earlier generations—time is on their side.  They can earn more compound interest than their parents or older peers.  By contrast, cash that sits in a bank account is subject to inflation and increased costs of goods and services, so the purchasing power of cash is likely to shrink over time.

If investing seems as scary as peering over the edge of a 10m diving board to the tiny pool below, the easiest way to start is to just start. Take a deep breath and make the leap. The water will be there to catch you.

So, can Millennials become the generation that all others measure themselves by in the future? The earlier we actually plan and invest, the greater the chance we have of giving ourselves financial freedom and options later in life.  Research indicates Millennials, won’t be able to retire until 75, so if you find this a rather alarming fact, then please get in touch and we can guide you along your path to financial freedom.

And for any parents reading this, the best piece of financial advice you can provide your children with is to start as early as possible.  There will always be reasons for putting your financial planning to the back burner however the simple fact is there is no time like the present!