What’s going on with the Millennials? Between September 2013 and 2014, the personal savings interest and effort of those 18-34 surveyed, declined considerably, according to the latest America Saves Personal Savings Index.
During this time period, interest in personal savings in this age group fell from 77% to 68%, while the reported savings effort dipped too, from 66% to 57%. In effectiveness they fell too, from 60% last year to 57% last month.
"It’s not easy to explain such a huge decline. Rarely in large surveys do the values and behavior of respondents change so dramatically in a relatively short period of time," says Stephen Brobeck, executive director of the Consumer Federation of America and founder of America Saves.
He surmises that the well-publicized economic and financial struggles of young adults related to their job prospects and realities, as well as mounting student loan debt are contributing factors. "It’s also likely that these economic realities have, over the past year, had a psychological impact, with young adults growing much more pessimistic and, thus less interested in saving."
It’s not uncommon for college loan payments to be in the $500-$1,000 a month range, couple that with car payments and other expenses and it’s not hard to see where a too small pay check can make saving a challenge for all the but the most determined.
There’s no shortage of possibilities for the decline. "They observed the crash of 2008 and the financial devastation it took on their parents’ investment portfolios and real estate holdings thus the ‘why bother’ attitude," says Melody Juge, founder and director of Life Income Management.
But despite the obstacles and disappointments young people face, some aren’t willing to attend the Millennials’ pity party. "Research and the experience of debt counselors show that even most low and moderate income people can find something to save each month, even if it’s only loose change," says Brobeck. Small change eventually adds up.
Then too, there’s the thinking that saving is essentially a lifestyle choice, and many Millennials are choosing to just say no. "Maybe that lifestyle may not have been modeled for them growing up. Maybe dad and mom don’t save much and live hand-to-mouth. Maybe they never were encouraged to save as young as eight or nine years old," says Lori Atwood, a financial advisor and planner with Fearless Finance.
They also may have seen plenty of spending, maybe not even in their household, but everywhere they looked they were inundated with messages to buy, buy, buy, the latest, greatest of everything, to be the prettiest, sexiest, or the flashiest guy with the coolest car and so on and so on. Young folks are often the ones standing in line for the newest phones, sneakers, flat screen TVs and the like.
Part of the challenge too, is that retirement and growing old seems light years away and this generation functions in the now and here, quicker faster please.
What do the numbers portend?
The survey results are not to be lightly dismissed. "We need to do a better job of educating our children about the pros and cons of compound interest and how time is money," says Michael Keeler a certified financial planner with GFS & Associates. The sooner they start saving, even small amounts, the better.
The ramifications of not saving are huge. "The big problem is these people will never get ahead in life. They will always be digging themselves out of a hole that is getting deeper and deeper," says Keeler.
Even those who develop a savings habit later in life won’t necessarily make up for lost time. "Although they may increase savings rates dramatically in the future, the time lost may lead to lower overall retirement balances due to the missed compound growth over time," says Joshua Duvall, an insurance and social media specialist with Capital Financial Services.
How to chart a different course
What’s the solution for what ails the Millennials? "Financial institutions have fallen short of their responsibility to educate and provide financial guidance and tools that help account holders really understand their money and how they can improve. Institutions have to make managing money not only easier and more convenient, but a lot more enjoyable and exciting as well," says Ryan Caldwell, founder and CEO of MX, formerly MoneyDesktop.
Truth is though, with technology there are a plethora of tools for those who want to use them.
Stick to the basics. "Know where your money goes. Apps such as YNAB, Mint or your bank’s money tracking app can be a huge help," says Katie Brewer, a certified financial planner with YRL Planning.
Figure out where your money should be going. "I love the 50/30/20 rule. Fifty percent or less towards essential fixed costs, like housing, student loans, car payment, etc., 30% or less to variable spending like clothes, eating out, and 20% or more to savings or additional debt payment.
Make it easy on yourself. Automate savings. What you don’t see you don’t miss.
The Millennials only need look around to see what happens when you don’t save for retirement. If 80 is the new 65, for Millennials will 90 be the new 65?