COVID-19 crisis: A step towards new saving trends?

People of every kind have been affected by the coronavirus pandemic. Jobs have been lost, salaries have lowered and many of us have had our personal savings severely damaged. As lockdown continues to be loosened and we are beginning to enter the “new normal,” people’s attention is turning away from health risks to economic implications. And it’s very clear that everyone has been impacted financially. A report from the latest Moneyfacts UK Personal Pension Trends Treasury indicated that the average pension fund value has dived by 15% due to the impact of the pandemic on stock markets.

The COVID-19 disaster is thus leading people to reconsider their financial direction – overhauling their personal finances, with particularly a renewed emphasis on saving. This was something that had been consistently falling since the end of World War II.

HRnews.co.uk has published an article about a study finding that 78% of people have realised they need to save more as a direct result of the COVID-19 crisis.

It has long been a challenge to encourage people to save more, so taking a longer-term view, this is a positive thing. It can feel slightly crude to talk about the positives of the crisis whilst still being in the middle of it. However, I hope the importance of good money management and savings comes back into the minds of British households. Another financial crisis is almost inevitable. People will be better able to weather the storm if they have more significant savings. However, the current economy is weak, and trust is low. How will people go about saving in the future? Let’s explore some potential trends in future savings.

Gold

Gold is the classic go-to investment when markets are unreliable. Here, we are seeing the same thing happen with the COVID-19 crisis – gold prices are nearing all-time peaks. Investing in gold is nothing new amongst the older and more experienced generation. Nonetheless, its long-established reputation as an asset that protects wealth may draw the younger generation of investors towards it.

Cryptocurrency

Cryptocurrency markets are notorious for their volatility and dubious regulation. This has led many investment analysts to call it little more than gambling. However, 2020 has seen almost gold-like value retention. This may pull in new investors to cryptos – particularly amongst the younger generation.

There have been many headlines over the last couple of years of people becoming crypto millionaires. One attracted a lot of media attention by suggesting people invest 10% of their earnings in cryptos. That may be a hard pill to swallow, as that’s more than the average people tend to save anyway. Yet, the younger generation are seeing cryptocurrencies like bitcoin appearing to be more stable. Perhaps they will become a more prominent factor in saving plans – even if not at 10%.

Foreign Currencies

Different countries are taking different responses to the COVID-19 crisis, with differing levels of effectiveness. People may not trust their own currency if they live somewhere where the response has been less effective.

Take, for example, the United States. Their response to the COVID-19 crisis has been generally uncoordinated and ineffective. Many areas of the US are still suffering severely even as the rest of the world begins to recover. An American may, therefore, begin to doubt that their USD savings will hold their value. The traditional “safe haven” currency is the Japanese yen, but they may seek to buy British pound sterling or the euro.

Further Insights

The younger generation has time on its side. This will hopefully lead to the pandemic being a small outlier on their statements. However, for those nearing retirement, they cannot wait for their pension savings to recover. This is an area that may lead to new trends in saving.

However, even if a savings culture is reborn in the UK, we need more financial advice for the adult population. Despite an increase in savers, 92% of UK adults do not receive any financial advice.

The Financial Times writes about the importance and the difficulties of improving this statistic:

“While the ideal situation would be for everyone to receive advice, a way to deliver this at a low cost and with the ability to adapt to customer complexity has yet to be found. That is where the benefits of more personalised financial guidance need to be acknowledged.

It does not take a financial services professional to know that the current definition of ‘financial guidance’ is vague. So vague that, when Tisa asked five leading companies to review a set of 20 examples of customer support to ask if they represented guidance or advice, we received five very different answers because of the ambiguity of the rules.

We need an enforced, unified approach to ensure clarity and consistency and greater personalisation to make guidance more effective.

The main case against loosening rules around guidance is trust. It is argued that financial services could use guidance as a means to flog inappropriate products – but there are ways of tackling this with appropriate regulations, qualifications and accreditations.

Furthermore, by limiting who can offer guidance services to regulated financial services companies and Maps, appropriate controls can be put in place.”

Overall, whatever the case may be, savings are firmly at the forefront of people’s minds. It’s likely we’ll see new trends and adaptations to the economic climate begin to appear.