It’s Good Money Week and there are encouraging signs that a new generation of savers are coming to expect more from their investments.
Tomorrow’s investors – the 18-24 year old millennial generation – are more motivated by the notion of doing social good than older generations, according to new research by YouGov and Standard Life Investments.
What differentiates millennials from their parents and grandparents? Their values are unique and shaped by the events that dominated their childhoods, argued Amanda Young, head of responsible investment at Standard Life Investments. “Millennials grew up in the shadow of 9/11 and the financial crisis”, she explains.
They are being shaped by technology and the expectation of instant access to information, said Young. Afraid of becoming their workaholic parents and accustomed to the flexibility afforded by technology, they want to work part-time and expect work to fit around their life, instead of vice versa.
An impressive 81 percent of millennials have donated money, goods or services to charity. Additionally, 61 percent are worried about the state of the work and want to make a difference.
Millennials think differently about spending money. With technology smoothing their path, they are moving from an ownership economy to a sharing economy. For instance, renting a car for a few hours is much more desirable than owning a car to millennials, said Young.
Right now, they have $200bn in annual buying power – but this will multiply many times over as they grow older and earn more money, according to Young.
They are already disrupting traditional business models. How will they disrupt the pensions industry?
Crucially, nearly half (42 percent) of the public believe that auto-enrolment default funds should be ethical or sustainable. Among millennial investors specifically, 58% want to invest in companies that achieve positive social outcomes.
Nearly half of millennials have chosen one product over another because of the company’s ethical stance.
What this means is that pension managers, trustees and asset managers alike will have to turn ethical investment from a wishy washy ‘nice to have’ into a fundamental aspect of their decision-making process.
This is often easier said than done - ethical investment is all about where you draw the line.
Samantha Lamb, investment director in Standard Life Investments’ fixed income group, explained that clients’ views vary dramatically across the globe. Australia and Sweden are very focused on excluding tobacco. Religious countries often want to exclude alcohol or pornography.
“All clients expect the others to have the same expectations and values. You have to draw the line,” said Lamb. “The nitty gritty is fraught with complexity.”
Instead of getting caught in the nitty gritty, Lamb and her colleagues seek common ground when making investment decisions. “We look for good global citizens”, she said.
What’s clear is that we are in a new, more responsible era. Tomorrow’s pension savers will be demanding far greater standards of disclosure and accountability in exchange for their hard-earned cash.