Financial worries are stopping Gen Y from travelling, starting a family and even doing their job properly – despite the fact that lifestyle tweaks could generate thousands. Should employers be going more to help young people?
Iona Bain
Young workers who struggle to save could build a £10,000 pot in seven years by saving £5 a day on shop-bought coffees or lunch. That is the claim from one provider of stocks and shares ISAs as the stock market booms ahead of a new tax year for ISAs. Fidelity International has calculated that by making “small sacrifices”, such as making a packed lunch and diverting £100 a month from the sandwich shop to a savings shop, the cash-strapped could get saving via the stock market.
It would take seven years and five months, with an investment growing at five per cent a year and low fees, to reach £10,000 – or nine years if you gave up an £80 a month gym membership instead. Even ditching the daily cappuccino at £2.50 a time could conjure up £10,000 in 13 years, on the same assumptions.
Switching from smoking to saving, meanwhile, could deliver a real bonanza. At just over £200 a month the transfer would achieve the £10,000 in three years and 10 months.
Tom Stevenson, investment director for personal investing at Fidelity International, said: “Many investors may struggle to stump up a lump sum to get their ISA portfolio started, but you could quickly build up a significant ISA pot by simply saving on small daily expenses, such as the cost of your daily cappuccino.
“The longer you can save for, and the sooner you start, the better your results will be, given the snowball effect of compounding.”
While stock markets have been performing well in recent months, with the FTSE 250 enjoying its best performance ion two years this week, money held as cash is being eroded by rising inflation. As consumer price inflation currently stands at 1.8 per cent and the average rate paid on savings accounts is 0.39 per cent, according to Moneyfacts, the actual value of money held in cash savings is going down.
Calum Bennie of savings provider Scottish Friendly said: “The greatest struggle is for savers who continue to suffer as there seems little prospect of a rise in interest rates in the near future.
“People looking to put money aside for several years might consider investment ISAs as an alternative to get better long-term growth potential.”
David Thomson, chief investment officer at Glasgow-based VWM Wealth, agreed, noting that “compared to many other investments, ISAs can grow rapidly in a largely tax-free environment”.
“Their flexibility means they punch well above their investment weight,” he added.
Despite this, young people in particular are finding it hard to save full stop, which is having a wider impact on their lives. A survey from Zurich found that more than half (56 per cent) of 18 to 34 year olds blame a lack of savings for preventing them from achieving life goals, such as starting a family or travelling the world.
Meanwhile, the latest Close Brothers Business Barometer found that in the workplace a third of people in that age group said that money worries have affected their ability to do their job.
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Compounding needs to be taught in schools…really think that if people understood the benefits of starting to save early, most young people would be so much more engaged with money issues.