Financial resilience and its role in retirement saving: the case of Britain's younger half of the working age population

Speaker: Ellie Suh, Rees Centre, University of Oxford

Ellie Suh will present her recent study on the role of financial resilience and retirement saving for the Britain’s younger half of the working age population (‘younger adults’).

Individuals are increasingly encouraged to save for their retirement in the new pension policy structure in Britain. On this premise, her study examined younger adults’ retirement saving activity outside the state and workplace pension saving schemes and found that less than one in ten saved for retirement outside these schemes. While many agreed that retirement saving decision-making was complex for younger adults, the issue of under-saving for this age group has been largely studied with the focus on undesirable psychological characteristics such as ‘myopia’ (‘won’t save’) or an overemphasis on income (‘can’t save’).

Recognising multiple economic challenges for younger adults such as homeownership, this study tested how younger adults’ psycho-social (internal) and socio-economic (external) characteristics interacted in the context of retirement saving. The decision-making process for retirement saving was mapped based on the Model of Financial Planning (Hershey et al 2007) with modifications to include a measure of financial resilience. The analysis utilised the fourth wave of the Wealth and Assets Survey (2012/2014) and was conducted in the structural equation modelling framework.

Results showed that younger adults’ discretionary retirement saving was an outcome of a complex interplay between internal and external factors. Financial resilience, which indicated current financial behaviours and wellbeing, was found to be the strongest predictor for identifying a discretionary retirement saver, but it was closely connected to individuals’ income and homeownership. The findings also suggest that social and economic arrangements were important to consider as social ageing, individuals’ projection on their life stages, may be more informative than age per se for understanding younger adults’ retirement saving behaviour.