No contingency for rainy days

Whether it’s saving for a deposit for a house or a pension, many people are not putting money away during the financial crisis as the cost of living and helping family members become more important

Piggy%20bankWe are all familiar with how personal debt levels have been partly responsible for the global credit crunch. Less has been said about how saving levels have been affected by the world’s spend-happy philosophy. Many people are simply not saving at all, according to research from BDRC.

More than 40% of child-free 20- to 30-year-olds are without a savings account. Surprisingly, 42% of “empty nesters” (whose children have left home) and over 30% of the semi-retired do not have savings either.

Even among those who say they are planning to buy their first house within the next two years, over half are not saving for a deposit. Not all of them said it was because they can’t afford to – some said they prefer to spend their money on other things or to save for other purposes.

Children – both young and older children – are finding it hardest to cope financially. As a result, many are relying on the “Bank of Mum and Dad” to help them. For “delayed empty nesters”, those where all or most of their children are over 18 years old but still live at home, 33% say they are helping their children get onto the housing ladder and 5% are paying for child-minding.

Pension planning has also fallen by the wayside. It is not only younger people facing this problem but even those in semi-retirement. A significant 30% have no pension at all and 64% of delayed empty nesters say it’s increasingly difficult to put money away for their retirement due to their children’s needs. This view is shared by 9% of empty nesters and 13% of semi-retired. As a result, 62% of delayed empty nesters, 39% of empty-nesters and 26% of the semi-retired believe they will not be able to retire at the age they want to.

With so little provision for pensions, just over a quarter of delayed empty nesters, 11% of empty nesters and 21% of semi-retired claim to be relying on the equity in their house as a pension. As house prices fall nationally, this means that many people may now be seriously concerned about funding their retirement.

There is a huge educational job for both the Government and finance brands to make pensions seem a more attractive and necessary investment for consumers. At present, people see pensions as volatile investments that are just too risky for their contributions. Many ordinary people have been relying on buy-to-let properties as a result, but this strategy is beginning to unravel. In the future we may see a situation where pension contributions are made compulsory by the Government.

It isn’t just retirement that adds to consumer stress. With a third of marriages ending in divorce, relationship break-up is a reality for a huge number of financial services customers. The experience of divorce encourages regular saving. Before divorce, one third of women have savings from their own income but only 18% save regularly. After divorce, 41% of women save money. This could be because fewer women struggle financially post-divorce: just 10% compared to 25% pre-divorce. Men are worse off post-divorce: 19% find it “very difficult” or “quite difficult” to manage financially compared with 9% before.

There is a great opportunity for brands to earn loyalty during these tough times by employing true customer relationship management. If they offer support through the bad times, these customers will be far more receptive to their brands when times improve. With so many people getting divorced, why are there no products targeteding this audience? There are products targeted at consumers for even worse situations, for instance, Virgin Money’s Cancer Insurance policy.

A lack of support isn’t confined to divorced consumers. While financial brands have begun to use the internet more to reach potential customers, they are not yet effectively tapping into the increased use of search engines (34%), blogs and forums (15%) and price comparison websites (10%) which are key sources of financial advice.

These alternative sources of information might be termed “financial influencers” as people have lost faith in independent financial advisers and mainstream providers. While research suggests that financial influencers are acting altruistically, up to 5 million people could be making major financial decisions based on the comments of a small number of unaccredited and unregulated “influencers’, which has to be a concern for financial brand owners.

When the immediate pain of the recession has been eased, financial services brands need to go back to basics to rebuild trust with consumers. They need to research consumers in order to get closer to their lives, desires, needs and aspirations. They need to talk to them in their own language, becoming advisers and supporters rather than faceless organisations.

There is no such thing as a “typical life stage” anymore – perhaps there never was – and today’s consumer is not a passive recipient of marketing messages. They are questioning, sceptical customers with the means to research products and brands and who are quick to move their allegiance to a company offering a better deal.

The brands that will win out after the dip of the global recession will be those that become consumer champions. If they don’t, non-traditional players will steal away business.

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