Millennials are the generation of people born between 1982 and 1996. They were the first global generation with immediate access to information. They have encountered social, environmental, and economic problems unheard of by previous generations.
Like all the young people
Not everything attributed to millennials is an exclusive characteristic of that generation, but more so the characteristics of young people in general. Gonzalo Rengifo, a member of the Inverco Observatory, points out that any generation’s way of saving is often more related to age than generation.
For example, some studies show that millennials are not interested in financial culture. They prefer to spend their money on food, technology, fashion, or entertainment.
However, the same thing also happened to young people 20 years ago. Decade after decade, young people have refused to plan for their old age.
This trend isn’t new. In 1998, a study found that the youngest generation born during the baby boom (the period between 1946 and 1964) saved less for their retirement than the oldest of that same generation.
In many respects, there is no difference between the attitude of millennials and that of young people 20 years ago.
Millennials are different
However, some characteristics typical of this generation make it even more difficult for today’s young people to save. It seems that millennials are worse at organizing finances than their parents or grandparents were at the same age.
A recent survey of 1,037 Americans found that less than a third of millennials contribute to a pension fund, while another study by Merrill Edge found that they are saving, but not for retirement. What they do save is insufficient in most situations.
Let’s look at some characteristics of this generation that explain this behavior and the reasons behind them.
More access to credit
Back in our grandparents’ time, there was hardly a culture of credit. Previously, people who wanted to buy a property or vacation were forced to generate savings to acquire it. As a result, financing and credit cards lacked penetration among the population as they do today.
Currently, young people have access to credit like never before, and the culture of saving has been replaced by a culture of paying debts, often to the limit of possibilities.
Mountains of debt
As a consequence of the previous point, more than three-quarters of all millennials are over-indebted. The monthly payments generated by university loans, a mortgage, car, credit cards, etc., are the main obstacles to saving for retirement.
Millennials are more concerned with paying off debt as quickly as possible than saving for retirement, although it makes more financial sense to pay the debts later. For them, paying off or reducing debt is the new American dream.
High housing costs
Homeownership is a priority for millennials. Of those saving, 40% do so to buy a house. However, when housing costs skyrocket, little room is left for retirement savings.
A home remains a stable asset in the lives of the generation who are becoming America’s primary workforce.
They take longer to start a family
According to statistics, millennials take longer to become independent and settle down. Without a doubt, starting a family accelerates maturity in all aspects of life, including finances.
Because of debt, 42% say they can’t buy a home, 21% put off getting married, and another 21% are delaying having a baby. Others wait longer to start a business or move on to a more fulfilling job.
Extending this period of life before uniting as a couple and having children also prolongs adolescence and youth with fewer responsibilities and more waste of their capital on travel and entertainment.
Consequently, many decisions are delayed, and with them the need to save money, especially for retirement.
A lack of financial education
Although more information about the benefits of saving and financial products is becoming available, the problem why millennials don’t save money lies in the lack of financial education.
Unlike previous generations, millennials are generally more informed thanks to the accessibility of resources such as the Internet and social networks. This has allowed them to become familiar with critical concepts for their finances.
However, this wealth of information is not always reliable, as it is often biased and can be contradictory. Being informed is not the same as having financial education.
To be an investor, you don’t need a lot of money or knowledge, but you do need professional and tailored advice. No one is born knowing how to invest, so it’s recommended to seek help from a financial advisor who will clear up your doubts.
The worrying outlook
According to a 2018 report from the US National Retirement Security Institute, 66% of working millennials have very little savings set aside for retirement.
On the one hand, some young people do not have the financial capacity to save due to their economic situation. On the other hand, many young millennials prioritize the present before the long-term projection, seeing retirement as something very far into the future.
As if this weren’t enough, many are discouraged because they don’t know how to save. They admit they have not done the math to know how much money they should save by 35 to ensure a decent retirement.
This gives financial advisors an excellent opportunity to connect with this generation of young investors who need guidance.
If we add to this phenomenon the extension of life expectancy and the imminent collapse of pension systems, it is undeniable that this generation will have more difficulties in reaching their financial goals in the future if they don’t begin to prioritize saving money.
Everything is not lost
Although we understand that lifestyle is a priority, we must not forget that there is always a tomorrow. Whether it is bad, good, or excellent depends on today’s decisions.
It’s not about giving up the things that make us happy. Instead, it’s about making accounts and adjusting your lifestyle to your income.
Thanks to the advancement of technology, there are many opportunities to train virtually and find the best investment for every individual. Asking a financial advisor for assistance can also be very helpful.
The best time to plan for your retirement is now. The good news is that millennials are still young and there’s still time!