Money’s too tight to mention: will the IPOD generation ever trust financial services?

Generation IPOD has had a uniquely gilded life with high expectations of future wages, financial security and consumer goods. Following in the footsteps of their baby-boomer parents and lacking the good housekeeping of older generations, they have continued to party long past 1999. However, in the process of this acquisition they have run up huge credit card bills, smashed their piggy banks and are now staring at a broken housing ladder.

Reform and the CII have conducted a major research project about the financial position of this generation. The focus group and national survey research of 18-34s compared to other adults has found that IPODs have higher debts and lower savings.

  • Over half of IPODs said they have debts of up to £10,000 and the same proportion that has no debt at all owe £10,000 or more. Whereas nearly a third of other adults said they have no debts, and only just over one in ten have debts over £10,000; however
  • On the savings side, nearly a third of IPODs have no savings compared to fewer than one in ten of other adults. Meanwhile one in five of IPODs have savings of over £5,000, whereas a quarter of other adults have £20,000 or more.

This mobile, tech-savvy generation (89 per cent of IPODs would buy a financial product over the internet) have the raw skills to understand their position and the dawning sense of responsibility to do something about it. However they are hamstrung by a financial establishment determined to service the old and patronise the young.

Financial services have not adapted to the entertaining, fastpaced way that Generation IPOD like to consume information. The industry is still mentally domiciled in the suburbs of the 1950s relating to a vanishing generation of people who are interested in lifetime savings backed with job-for-life security.

Inflexible products are presented in a complex way, yet often failing to disclose basic important information.

It is not surprising that IPODs place greater trust in friends and family rather than relying on price comparison sites or independent financial advisers (IFAs), whom a third of IPODs think are out of touch with younger generations:

  • While half of IPODs use family and friends most often for getting advice on money matters, among other adults this was only a quarter;
  • As for the reasons for this choice, IPODs cite trust, ability to explain clearly, and ease as their top three priorities, with cost being the least important.

Government has created a heavy burden of regulation and so-called “consumer protection” policies, yet has presided over excessively low interest rates and burgeoning personal debt. This has been mirrored by lack of Government fiscal control, with spending increases disproportionately benefiting the old, creating a huge national debt which younger taxpayers will be paying for over years. IPODs are well aware of this with 58 per cent expecting less state pension than their parents receive and 43 per cent expecting less from the NHS than their parents have enjoyed.

Things can only get worse. With the global credit crunch ransacking financial markets, this generation will struggle to pay off debts and find lenders prepared to finance house purchases. There may be a few silver linings – house prices will not be so astronomic – if IPODs are able to get mortgages.

The credit crunch provides a vital opportunity to reassess the approach to the finances of a generation, for IPODs themselves, government and industry.

A continuation of current trends would see ever-increasing distrust of government and financial institutions coupled with a lack of capability to do anything about it. A government that increasingly tries to protect the individual will find itself without the means to do so. It could spell the beginnings of a long downturn and a “generation of victims”.

The alternative path open to Government is to build an empowered, “saviour generation”, who feel capable of taking control of their own finances, understanding risk and actively providing solutions to the problems arising from the credit crunch. They could create a demand for new products, create new capability and lead a pathway out of the financial crisis.