Two thirds of people aged 18-33 are saving - KPMG survey

Two thirds of respondents in a KPMG survey conducted among persons aged between 18 and 33 – the so-called Generation Y - do not spend all of the income they receive. Of the one third that do spend all their income, 64 per cent said that they intend to start saving.

This means that 88 percent of all respondents are either already saving or intend to start saving while the other 12 per cent do not save and have no intention of starting to save. Generation Y is generally defined as persons born between 1976 and 1991. They are primarily the offspring of the Baby Boomers who were born during the 15 years following World War II to 1961. According to KPMG this generation is the segment of the population that will shape the future success of the global and Maltese economy.

The survey was conducted by KPMG in September and the focus of the research was to determine the investment profile of Generation Y, being the future accumulators of wealth in Malta. Respondents were asked questions aimed at gauging their risk appetite, investment horizon, financial literacy and their primary source of financial information.

Of those respondents already saving, 75 per cent expect to hold their investments for the long term, while six per cent expect to hold them for the medium term. Only 19 per cent have a short investment horizon.

Among those who currently are not, but intend to start, saving, 67 per cent would save for the long term, four per cent for the medium term and 29 per cent for a short period. Both sets of responses indicate that Generation Y has a preference for investing long term, rather than short term.

“This may be a reflection of the fact that they want to create a nest egg to be able to draw down on it in later years, but it may also be a cultural trait,” KPMG said.

Most Maltese Generation Ys who are saving only choose to invest in conservative assets. In fact, 69 per cent of respondents generally put their savings in the bank whereas only 20 per cent opt for riskier assets including shares (six per cent), bonds (eight per cent) and funds (six per cent). The remainder (11 per cent) invest in other assets such as property, life insurance and their own business.

Similarly, when asked what their primary investment objective is, only 11 per cent said capital gain, while 23 per cent are most interested in regular income and 66 per cent want safety in their investments above all else.

The main reason that respondents gave for choosing to invest in shares, bonds and funds, was that they were given advice to do so. Other respondents chose to invest in bonds since they offer a higher return than bank savings and yet still offer some security. Another common reason for investing in funds is that they are considered a profitable and efficient way of saving for the future.

Asked what they would invest in if they had more money, the responses shifted to more aggressive investments than those present in current portfolios. Only 38 per cent would put more money in the bank, compared to the 69 percent who are currently placing their savings with banks.

Instead, 47 per cent would invest the extra money in shares, bonds and funds, which is more than double the current amount of people investing in these asset classes. The most pronounced change is in shares. While only six percent of respondents currently invest in shares, 22 per cent said that they would buy shares if they had more money available.

KPMG said this may seem to indicate that the main reason for their lack of investments beyond bank savings is the lack of funds available for investing. A number of respondents stated that the reason they chose to retain so much money in bank deposits was precisely because they had limited funds available for investment and therefore were not willing to put them at risk.

Respondents were asked whether they knew what a hedge fund was and only seven per cent answered in the positive. This may indicate that the level of financial literacy among Generation Ys in Malta is low.

The majority (75 per cent) of respondents have not sold or bought investments as a result of the financial crisis. Only four per cent have increased their level of investment as a result, while 21 per cent have withdrawn some investments.

KPMG said the survey highlighted that Generation Y has not grabbed the opportunity provided by the financial crisis to enter the market or increase portfolio assets by purchasing assets at the prevailing lower market prices.

Just over half (52 per cent) of the respondents say that they go to the bank for their first source of financial information. This is not particularly surprising since 69 per cent are putting their savings in the bank.

A high amount of respondents (31 per cent) consider family their primary source of financial information. This may also help explain Generation Y’s choice of conservative investments, as they may be listening to their parents’ advice when deciding what to do with their money.

Eleven per cent said that they use the media as their first source of financial information. “This reflects Generation Y’s comfort with using the internet as well as their confidence in making their own decisions,” KPMG said.

Four per cent of respondents consult with friends when they require financial information, which is quite low considering the fact that Gen Ys are highly peer-oriented.

Only two per cent cited stockbrokers as their primary source for financial information.

“Generation Y is a generation that is hugely different to the generations that have come before it. The asset management industry may need to make a conscious effort to better understand this generation and to rethink its positioning in order to service the wealth accumulators of tomorrow,” KPMG said.

As a prelude to the survey, KPMG conducted an analysis of the profile of investors holding listed investments on the Malta Stock Exchange. As at June 30, Baby Boomers made up 36 per cent of investors on the MSE, while Generation Y investors amounted to 12 per cent. Baby Boomers were invested primarily in bonds (31 per cent of their total investments are in government bonds while 29 per cent of their total investments are in corporate bonds), while 40 per cent of their investments were equity holdings. On the other hand, Generation Y investors have 53 per cent of their holdings in equity investments, 24 per cent in government bonds and 23 per cent in corporate bonds.

The survey was carried out over a two-week period by way of telephone interviews. The respondents were people aged between 18 and 33 picked randomly from the Maltese electoral register.