Millennials are a demographic of people between the ages of 18 to 37. They are the fastest growing demographic of people set to replace replace the position once held by the baby boomer generation. However, when it comes to millennial savings, there is a generational gap of financial understanding, especially in investing.
Millennial Savings Plans Don’t Include Investing
Over 30% of millennials believe in saving money, and only in cash, for retirement and other endeavors to pursue over a decade. In other words, millennials believe cash is the only way to invest in the future. A little less than 25% of millennials believe in stock market investment as a long-term strategy for financial growth.
Most millennials don’t favor the stock market as a vehicle to increase a return on investment. Over 77% of millennials prefer investing in precious metals, bonds, and cryptocurrencies. Cryptocurrencies are a surprising choice for investment since they are notoriously volatile. The trading value of numerous cryptocurrencies is experiencing a sluggish investment period after the boom of 2017.
This is a worrying statistic because most people, especially millennials, are not ready for retirement. Over 66% of millennials have absolutely no money at all saved for future retirement needs. Currently, there are about 82 million millennials. This demographic will experience diminishing social security and pension benefits as they age. Millennials will have to significantly save more than previous generations just to keep up with increasing standard of living rates.
Investment Hesitancy
There are many reasons millennials may seem hesitant to trust traditional financial and investment practices. For one thing, this digital age generation doesn’t trust investing like baby boomers. Millennials have a difficult time accepting the idea of investing in funds that won’t financially mature for years or multiple decades.
Additionally, millennials were just children when they witnessed the near collapse of the global financial infrastructure in 2008. About $12 trillion of American wealth alone was eradicated during that period. Most, if not all, of the federal bailouts that were issued to ameliorate the crisis went to the banks and financial institutions.
The very same banks and financial institutions whose dubious lending practices contributed to the near collapse. Millennials undoubtedly witnessed the stress, uncertainty, and personal toll that the 2008 financial crisis exacerbated on their parents. The 2008 financial crisis must have been a period of time where millennials learned to inherently distrust investing.
Can Attitudes Change?
It isn’t realistic to expect appreciable returns on cash savings alone to pay for retirement lifestyles. Stock market investing is fraught with risk. However, the history of stock market investing favors the investing risk. For example, investors gain at least an annual 9% return from the S&P 500 – a statistic that has stood for over 90 years.
Millennials need to be more aware of employer contribution retirement and pension plans. Auto-enrollment into various worker pension programs can help as well. More financial literacy about tax credits is another way that millennials can add to savings.
The average price for a house is a little over $275,000. The interest rate for 30-year fixed rate mortgages is a little under 4.7%. Standard of living costs will continue to rise. Hopefully, the millennial generation will somehow learn that there is more to investing than just believing in cash. May this lesson be learned before another financial crisis.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.