Millennials are the group of people born roughly between 1981 and 1996, and who now account for the largest generation in the western world.
There’s a lot said about the thoughts and actions of millennials – or Generation Y – being different to their parents and grandparents, so I thought it would be interesting to see if this applies to savings and wealth too. My research delivered quite a few financially-related commonalities:
- Due to large student loans, many millennials are too focussed on debt to prioritise savings.
- There is a tendency to be risk-averse when it comes to investing; millennials are good savers but bad investors. According to an Ally Financial survey, 66% of Americans aged 18 to 29 (and 65% of those 30 to 39) say investing in the stock market is scary or intimidating, compared with 58% of those aged 40 to 54 and 57% of those 55 and older.
- Millennials anticipate retiring early and rich. An article in The Economist published on 22 April 2019 quoted results of a survey by TD Ameritrade showing that more than half of American millennials believe that they will one day be millionaires; one in five think they will get there by the age of 40. Statistics published by the Federal Reserve Board of Governors fly in the face of these ambitions as the median worth of households for people age 20-35 is at its second lowest level since at least 1989. Furthermore, according to economist Joseph Stiglitz, millennials will be the first generation to be poorer than their parents.
- Many millennials are employed in young companies which have no group (forced) savings benefits.
If you are a Generation Y alumnus and have read to this point you may be feeling pangs of anxiety, especially if you can relate to the points above. You also, although unrelated, most probably have a preference for self-help apps and doing your own research; thankfully there are many financial and savings products that fit this penchant.
When I read the articles and data referred to earlier it doesn’t seem that enough millennials are taking advantage of the apps and information designed for them. There is a modern adaptation of an old saying that helps me logicise my previous thought: ‘an IT technician is always the last to back up their work’.
Young people, including myself (I count myself as young!), are always so busy working and squeezing in some family time that we spend little time on things that are personally important. But I can’t emphasise enough that now it’s time that you started to give f***, about yourself that is, and work on a plan to start accumulating some wealth (just in case you aren’t the next Evan Spiegel). Here are a few facts to point you in the right direction:
- It’s never too late to start saving (don’t let point 2 below put you off).
- The earlier you start saving the easier it is to reach your objectives. I recently wrote an article called ‘Save Now or Retire Never’ which included some calculations on the benefits of starting to invest early; I think its beneficial to repeat these:
Example 1: Person A’s parents start a R1 000 debit order the day she is born which she carries on until she is age 65. At a 10% return, person A accumulates R78 222 379 after contributing just R780 000.
Example 2: Person B starts a R1 000 debit order at age 21, when they start working, and carries on contributing to age 65. At a 10% return, person B accumulates R9 556 496 after contributing R528 000.
Example 3: Person C starts a R1 000 debit order at age 45, and carries on contributing to age 65. At a 10% return, person C accumulates R765 697 after contributing R240 000.
- You have a long time to invest so embrace appropriate risk. Putting your savings in a bank account doesn’t count as investing and you will definitely lose out to inflation over time especially when considering tax. You may have come of age in the 2008-2009 crash but economic cycles happen and long term returns remain compelling.
- It’s understandable, and correct, that you are cost-conscious and want to do things yourself but it’s ok to ask for help. Find a financial advisor who thinks like you and let them help to lay out a plan for you to start and grow your savings.
- If you don’t like my former point, then do it yourself but you must do it and not just think about it.
- There is no substitute for working hard and for many years. These two things, along with some financial discipline, can almost ensure significant wealth accumulation. You must shoot for the stars when it comes to success but at the same time start and continue your investment journey with the same vigour.
- Besides savings it’s also very important that you insure yourself against being unable to work due to a disability or severe illness.
It’s an amazing time to be growing up as a member of Generation Y. It’s also daunting with rapidly changing technology and social norms. That said, some things are unlikely to ever change and the need for financial security is one, economic cycles is the other which automatically means that the third is the proven benefit of long-term savings with appropriate risk.
Work out a plan. Give a f***!