In the United Kingdom, saving has seen a downfall in popularity, particularly with younger consumers. With low interest rates flooding the market, few millennial consumers feel that they can save well or even save at all. New mobile services are hoping to change that perception. Patrick Brusnahan investigates
It is a common, and possibly unfair, assumption that younger consumers are not interested in saving their money.
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According to research from peer-to-peer lending platform RateSetter, a quarter (26%) of young Britons – between the ages of 18 and 30, do not save or invest anything. 59% prioritised their spending on going out and other luxuries rather than saving.
In addition, 62% of respondents said that they were clueless about savings and investment options. Only 27% were financially planning for retirement and just over one-third of Britons under 30 years of age said they could not imagine owning a house unless they inherit one.
However, a poll of 1,000 adults from Bankrate.com found that millennials saved more. 191 millennial adults reported saving between 6% and 10% of their income while that number dropped to 169 people for adults aged between 30 and 40 years old, dropping even further for those aged between 50 and 64.
The common theme appears to be that younger consumers want to save, but they simply do not know how or see the point.
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By GlobalDataNewer services for newer savers
A number of new platforms are being released to help millennials save some of their income.
Chip is one of them. Chip is a mobile app that links to your bank account and monitors your expenditure. Through this, it calculates an average expenditure and how much the user can save. It sends these savings to a separate account, which can be accessed at any time.
In addition, the interest rate can be increased if you refer people to the service.
Speaking to RBI, founder and CEO of Chip Simon Rabin said: “We are focusing on the millennial market, people between the ages of 20 and 35. They notoriously have quite a negative relationship with their money.
“We know from our own experiences and our peers that we don’t seem to have a great relationship with our money. We use our overdrafts a bit too much. We probably don’t have a great awareness of where and why we’re spending, which then gets us into trouble and leads us to feel negatively about money in general.
“The view with Chip is to help solve that by proving to people that it is possible to get some control and start saving. We see saving as the foundation to getting a grip with your financial life.”
“It doesn’t matter what you earn, how often you get paid, or how much you spend, Chip will identify, albeit small, savings opportunities for you and automatically moves that into a savings account for you,” he added.
Moneybox, another new facility for savings, not only wants to help consumers save, but helps them invest.
The app has three methods of collecting money for savings; one-off deposits, weekly deposits and the interesting round-up service. This last one asks consumers if they want to round up purchases to the nearest pound. At the end of the week, the app puts the excess from your bank account into a stock and shares ISA.
The ISA has three funds, a cash fund, a global shares fund, and a global property fund. Users can set up their investment preferences, from cautious to adventurous, which determines how much money goes into each fund.
Ben Stanway, co-founder of Moneybox, told RBI: “We’re trying to address two issues that people told us they have with their personal financial lives. One is that people struggle to set money aside in any structured way and not being happy with the options available to invest in or to save. If you think about the issue, people are saving less than they could. We hope people can get saving every day rather than something they forget to do.
“So far, our target market is people primarily between the ages of 25 and 35 who have money to save, but don’t get around to doing it. Either that or people who know about the world of investing but consider it too complicated and think they don’t have enough money to get started.”
Making it easy
Saving money and investing is often seen as a complicated and arduous task. Both of these start-ups are attempting to wipe away this notion.
Stanway said: “[Moneybox] takes a minute to set up and you can withdraw at any time free of charge. The user sets up their investment preferences and we give three options, cautious, balanced and adventurous.
“The cautious option puts more into the cash fund and less into equities; the adventurous option puts more into equities and less into the cash. The user can make the decision where the money goes between those three and can customise allocations at any time.”
Chip also focuses on ease of use and instant setup.
“All you have to do is connect Chip to your current account and it automatically starts saving for you. It looks at your monthly incomings, your fixed outgoings and identifies your discretionary spending, what your average spending should look like and monitors how you behave in accordance to that average. It even goes back three months,” Rabin explained.
“Whenever you spend slightly less than that average, it takes that money away from you at arm’s reach.”
Through this simplicity, Rabin has high expectations for interest in the service, as well as consumers taking up the option.
He said: “There’s 14 million millennials and, unbelievably, 30% of them use their overdraft every month. We think that is a number that is far too big and proves the point about those users having a negative experience with their money.
“We’re going after them; we think Chip will be very useful for those users. 14 million, 30% of them using their overdraft, those are the people that we can help the most at the beginning.”
Working with and against banks
To attract consumers to save with newer technology can be a difficult task. While consumers may not be happy with their banks, they certainly trust them with their money. Moving that to a newer, unknown company is regarded as an uphill struggle.
“We’ve done a lot to address the issue of trust in general,” Stanway said.
“We’re authorised by the FCA, which is a two year process. We have Tier 1 investors backing us. Charlie (Mortimer, co-founder of Moneybox) and I are experienced and ran billions of dollars in money management for ten years. We do a lot to address the issue and I think the uptake has been significantly ahead of what we expected.”
Rabin sees Chip as part of the future landscape of banking; apps linking into banking infrastructure and offering services that the behemoths cannot.
He said: “There was the retail banking report from the CMA that spoke about open banking standards and API banking. We see ourselves as the first example of how this will work. We are a third-party provider targeting a particular demographic of people who are able to plug into a number of retail current accounts and offer those customers a different or value-added service.
“From an open banking point of view, what API banking is going to look like, this is exactly it. You are going to see a marketplace of apps that are going to sit on top of current accounts and offer a wide range of interesting and useful service that the banks themselves have not provided or have not been innovative enough in providing.”
In addition, Rabin claimed that the ‘tremendous advantage’ Chip had over a bank was its agility and not needing to make changes through a legacy system.
He concluded: “How are the banks going to react to this? Are they going to kick, scream, and resist? If they do, they will eventually lose because the regulator will impose it upon them.
“Or will they actually embrace it and, in doing so, will they either invest or own parts of companies like us or will the banks look for revenue models elsewhere and allow firms like us to actually own the relationship?
“Some are saying there’s a comparison to what happened in the telco market. In the early 2000s, there were three mobile network companies, but the regulator stepped in and allowed other operators to come in without any infrastructure cost and onboard mobile customers and sell to them with a deal with the network operator. Are we going to see the same thing in banking?”
