Imagine Jack, a 22-year-old recent graduate entering the workforce, already burdened by the weight of economic uncertainty. Like Jack, nearly half (47%*) of young people in the UK find themselves in a precarious financial situation, with this figure alarmingly rising to 57% among those aged 22-24.
As Jack grapples with the complexities of budgeting, saving, and planning for the future, he embodies a generation facing financial instability from an early age. This is the current landscape of today's young adults – ambitious, digitally savvy, yet teetering on the edge of financial security. It's a narrative that raises a critical question: how can the financial services industry adapt to meet the needs of Jack and his peers? But more importantly, why should it?
This question often stirs debate within the industry. Many advisers might wonder, 'Why should we incur costs for little or no return?' It's a controversial stance, but one that merits consideration. Is it the industry's duty to adapt, or should the focus lie elsewhere? By exploring this question, we aim to uncover not only the challenges faced by young individuals like Jack but also to delve into the broader responsibilities and potential motivations of the financial services sector in shaping a future that’s financially secure for all.
The UK financial services industry faces a significant challenge in meeting the needs and preferences of younger generations when it comes to financial advice, particularly in the areas of budgeting and debt management. The current state of financial advice in the country has several shortcomings that need to be addressed in order to bridge this advice gap.
One of the main problems with traditional financial advice is its disconnect from the needs and preferences of younger generations. Many younger people have grown up in a digital age where technology plays a crucial role in their daily lives. They are used to finding information, products, and services online, and expect the same convenience and accessibility when it comes to financial advice.
Traditional financial advisers, on the other hand, often rely on face-to-face meetings and paperwork, which may not resonate with younger clients. This disconnect can lead to a lack of engagement and trust in the financial advice process.
Unfortunately, there is little money to be made from helping someone with their budgeting needs and all financial advice firms have overheads that need to be met. Younger people are more likely to seek advice from online sources or use mobile apps to manage their finances. They value convenience, transparency, and simplicity, which are not always offered by traditional financial advisers.
Too often we talk about an ‘advice gap’ as if it is one thing and assume ‘advice’ is the issue, when in fact there are several things that create the so-called ‘advice gap’. The main areas that create the traditional ‘gap’ are:
To address this gap, financial institutions, regulators, and policymakers have a critical role to play in bridging the advice gap. They should prioritise financial education in schools and invest in initiatives that promote financial literacy among the younger population. By doing so, we can empower young people to take control of their finances, make informed decisions, and seek appropriate advice when needed.
To support innovation, regulators also have a responsibility to encourage the financial services industry to adapt and embrace technology by amending existing regulations to support a new way of interacting with customers and delivering services digitally.
Traditional financial advisers need to integrate digital solutions into their practices to meet the needs and expectations of younger clients. This may include offering online consultations, providing comprehensive financial planning tools and resources on mobile apps, and using artificial intelligence to provide personalised financial advice.
In summary, the UK financial services industry faces a number of advice gaps, particularly in the areas of budgeting and debt management. The disconnect between traditional financial advice and the needs and preferences of younger generations, coupled with a lack of financial education, has contributed to this gap. To bridge it, financial advisers need to embrace technology, while policymakers and educators need to prioritise financial literacy. By addressing these issues, we can ensure that younger people have access to the financial advice they need to achieve financial security.
At Multiply, we believe that if we don’t change as an industry, we risk failing an entire generation who may be tech-savvy, but not financially savvy, so let's bring finance to the tech! We want financial education and advice to be available and affordable for all.
In our next blog, we will explore what technology can offer, with particular focus on how it can improve financial education, and guidance and advice services.