Transforming retirement planning for younger investors
When you’re young, the idea of retirement seems like a far-off dream, and preparing for it can wait until tomorrow. However, the sooner people think about it, the better. With access to digital financial services apps and the ability to ask the internet a myriad of questions about finance, it seems younger generations are becoming more financially aware than ever before.
Janet Yang, tech lead at DLT Apps, Zeta project, pointed to the current economic climate as a key driver to the greater financial awareness compared to previous generations. “The rising cost of living, erratic income streams, and fluctuating job markets have made financial stability increasingly elusive,” she said. All of this has resulted in an understanding among younger individuals of the importance of preparing for retirement early, compared to older generations that often delayed their plans.
Supporting this, a recent study from Junior Achievement and MissionSquare found that 83% of 13 to 18-year-olds have already thought about their retirement. Despite this, there is still a need for greater support and financial education to ensure they can make the best financial decisions. For instance, that same study found that most teenagers believed saving money was the best way to prepare for retirement, with only 45% believing investments offer the greater long-term return.
In line with this, Yang explained that while there is greater awareness among younger people to prepare for retirement, many lack the confidence in their decisions. “The sheer volume of information, coupled with the complexity of financial markets, can be overwhelming, leading to uncertainty about how much to save and how to structure their financial plans. This is where financial firms can play a crucial role in supporting younger investors by offering tailored services and guidance.”
The lack of financial literacy and confidence can impact the success of a retirement plan. As such, there is a growing level of concern that many people will not save enough for retirement and could outlive their financial wealth. Jurgen Vandenbroucke, managing director at everyoneINVESTED, said, “There is a growing concern that many people may not save adequately for retirement, risking outliving their financial wealth. Governments typically encourage retirement contributions through favorable tax treatments and subsidies. Yet, engagement techniques introduced by behavioral economics, like default setting and automatic enrolment, have been shown to outperform the impact of financial encouragement.
“Most famous is likely the SaveMoreTomorrow program of Nobel laureate Richard Thaler and Shlomo Benartzi, where participants pre-agree to allocate future wage increases to their retirement. SaveMoreTomorrow is most effective in countering the tendency to procrastinate. The impact of this famous nudge can be monitored online.”
How to support younger generations
Vandenbroucke explained that financial wellbeing should be the foundation to everyone’s life, as advocated by Meir Statman – one of the founding fathers of behavioural finance. With this belief, everyoneINVESTED aims to make financial well-being accessible to all by engaging younger generations in retirement planning.
He explained, “In recent years, the accessibility of investment services has drastically improved. One reason is the rapid growth in financial technology; everyone carries a financial advisor in their pocket. Equally important is the content-driven innovation in behavioral economics and choice architecture, which helps understand people’s intent and anticipate their behavior. The combination yields digital engagement techniques that can improve well-being, much like a dentist delivers information and easy-to-use products that promote oral hygiene comparing economists to dentists.”
Yang offered a number of ways firms can support younger generations with retirement planning. The first of these is through access to educational resources. Through clear information that outlines the challenges and opportunities presented by retirement savings, firms can help younger clients make informed decisions. These educational materials might be workshops, webinars or personalised advice sessions.
Another way to support younger customers is by offering personalised financial planning tools that will help them meet their unique financial goals. Yang said, “Firms can assist younger investors in creating customised retirement plans that align with their specific objectives, such as buying a property or funding higher education. By offering tailored advice and planning tools, firms can help younger clients develop realistic, achievable goals.”
Finally, firms can supply their younger investors with tools that let them track retirement savings and investment performance in real-time. Similarly, they could provide them with clear insights into their financial health so they can adjust their strategies. “These tools not only enhance transparency but also foster a sense of control and confidence among younger investors,” Yang added.
How has WealthTech changed retirement planning for younger generations
Technology has become a core part of people’s lives, with many young people not knowing a world without it. Due to this, many younger investors prefer to get their support from online, such as WealthTechs offering digital planning tools or automated investment options.
Vandenbroucke noted, “Digitisation enables the expansion of retirement awareness and contribution reach even further. At everyoneINVESTED, we ensure this translates into easy-to-use applications built on sound methodologies for investor protection.” He added that evidence is showing how digital engagement techniques can lead to better and more retirement contributions.
Highlighting how influential the digital world plays on younger investors, a recent study from Forbes Advisor found that 79% of Americans representing the millennial or Gen Z age groups have gotten financial advice from social media.
Yang explained that the shift towards digital solutions has been driven by the desire for convenience, personalisation, and efficiency. This shift is not only benefiting customers, but also the advisors.
For instance, WealthTech has empowered financial advisors to go online. Not only does this help them attract younger customers, but also reach a wider audience. Yang said, “The ability to deliver services online helps advisors attract and retain younger clients who are eager for guidance but may be unsure where to find it in traditional settings.”
Another benefit financial advisors have experienced is greater automation, boosting their efficiency. Time-consuming tasks, such as portfolio rebalancing, risk assessments, and performance monitoring, can be automated so advisors can focus their efforts on their customer engagement.
On the other side, WealthTechs have helped to lower the barrier to entry for younger investors to start investing. Additionally, advanced AI-driven tools can analyse market trends, assess investment performance and give personalised recommendations, while real-time monitoring solutions provide greater transparency to younger investors looking to stay on top of their financial planning.
The importance of financial education
As mentioned previously, financial education can be an important tool in helping younger investors with their retirement planning.
Yang said, “As the responsibility for retirement planning shifts increasingly to individuals, financial education becomes essential for younger generations to navigate this complex landscape. A strong foundation in financial literacy equips them to create personalised retirement plans, set realistic goals, and develop strategies that align with their long-term objectives.”
Not only this, but financial education can help younger people prepare for tough economic challenges, such as market volatility and inflation. Yang added, “With a strong financial education, they are better equipped to make sound decisions during difficult times, such as knowing when and how to seek financial support or how to adjust their spending habits. This preparedness is crucial for maintaining financial stability and achieving long-term retirement goals, even in the face of adversity.”
However, the importance of financial education goes beyond making smart investment and saving decisions. When the person retires, they will still need to make financially savvy decisions to ensure they don’t run out of money. This is another area where digital engagement can help.
Vandenbroucke explained, “This goes beyond the standard financial advice to best manage a lump sum portfolio. The challenge is to offer an optimal financial planning decision framework that extracts income to balance the desired living standard with life expectancy. Alternatively, a government may favour taking up retirement plans as an annuity rather than a lump sum, attempting to socialise longevity risk. Regardless the politically desired outcome, digital engagement can help achieve it.”
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