• Ujwal Arkalgud

The counter-intuitive nature of retirement planning (for younger consumers)

Retirement planning is an important topic for the banking and finance industry primarily because it allows them to build long-term relationships with clients who lock away their money for long periods of time. The problem however is that it's getting increasingly harder to convince younger people to save for their retirement, let alone hand a portion of their income to financial institutions on a regular basis.

One common assumption has always been that in order to save for retirement, one might need to cut certain expenses, and thereby make room to put money away. This assumption of course is logical and makes absolute sense. But ironically does not reflect how consumers actually think and act. You see, culture is funny in this way - it's often irrational and always driven by emotion.

When we examine the culture of saving for retirement among young consumers (25-44) in the US, we find that what drives them to save is actually greater financial constraints - i.e. worrying about childcare costs, kids education, family budgeting etc. Alternatively, what prevents them from investing in retirement is having their finances in order - i.e. cutting expenses, building additional sources of income, being prudent with tax planning etc. This of course is rather counter-intuitive.

Predicting the future of retirement planning for 25-44 year old consumers

What this tells us is that the more consumers feel like their financial life is in order, the less likely they are to think about saving for retirement.

In fact, they're more likely to think about spending than saving. This imposes an interesting conundrum for the finance industry - the younger consumer doesn't want to save for the long term when they actually have more money to save.

So motivating younger people to save for their retirement is clearly a cultural problem, rather than a logical one. It's also one that's very life stage driven. For example, younger consumers without children want to live life on their own terms. When they feel strapped for money, they are faced with the reality that they might not be able to truly live life on their own terms if they don't think about the future. Meanwhile, those with children want to ensure their children are set up for success. This of course pushes them to spend significant resources on their children, which in turn creates financial pressure and counter-intuitively pushes them towards retirement planning.

Comparing motivations of retirement planning across life stages

This means if financial institutions are to attract younger consumers, they need to be able to demonstrate to them just how financially strapped they really are. An interesting thought to consider, when the entire industry is so focused on messages of freedom and release, rather than the feeling of being trapped and stressed. A case of negative reinforcement working to the benefit of the industry, perhaps. Certainly one that can be further (and deeply) examined with MotivBase.

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