In addition to the probability of falling into the “sandwich” trap, millennials tend to start their economically active lives under the burden of student debt due to the rampant rising costs of tertiary education, and their parent’s inability to help fund it.
The culture of consumerism that pervades the millennial generation also means that many choose to buy material things such as cars as status symbols rather than for functional purposes, often spending more than is rationally sound. The same applies for consumer technology, fashion and other everyday items. This only serves to increase their debt burden, leaving less expendable income available at the start of each month to contribute to long-term savings and retirement.
In fact, a World Bank report published under the title of the Global Findex database in 2015 labelled South Africans the biggest borrowers in the world, with 86% of South Africans borrowing money between 2013 and 2014.
Further compounding the matter is the fact that life expectancy has, in general, increased for millennials, which means their retirement savings now also have to stretch much further.
This all paints a bleak financial future for millennials, who seem doomed to repeat the financial mistakes of their parents. This is despite a much more mature and robust financial industry, with a multitude of savings vehicles and numerous online investing platforms and products at their disposal. Yet, it seems that millennials prefer putting whatever they save into cash reserves, a trend highlighted by a 2014 UBS report on the NextGen Investor.
According to the research, millennials are extremely conservative, preferring to be savers rather than investors. This attitude to money, the report states, has been shaped by their “access to lightning-fast technology innovation, and the dramatic economic and market volatility that constrained job prospects and earning abilities, as well as disrupted their parents’ real estate values, investment portfolios and retirement savings … This translates into their attitude toward the market … They fully buy into the redefinition of risk as permanent loss.”
These factors have led to a lack of trust among millennials in financial institutions and the industry at large, and their extremely conservative approach to investing. This has resulted in the current investment status quo, where “just 26% of people under 30 are investing in stocks” and “52% of Americans report not owning any stocks or stock-based investments such as mutual funds,” according to a recent Bankrate Money Pulse survey.
This leaves millennials in an extremely compromised position because they aren’t saving enough, and what they do save isn’t yielding the returns required to build meaningful wealth for their retirement.
* Paralysis by analysis plagues millennials more than any generation before them. Next week, Van der Merwe explores solutions to the pending problem of a generation averse to investment.
Walter van der Merwe is CEO of FedGroup Life