Most Gen X and Y Americans financially uninformed

LIMRA’s research discovered that among Gen X and Gen Y consumers with access to a defined contribution (DC) plan through their employer, those who have never made contributions are more likely to feel less knowledgeable about investments and financial products than those currently contributing to their DC plan. This finding suggests that if financial literacy could be improved for these consumers, the likelihood of participating in their employers’ DC plans may rise.

The study also finds that the market opportunity for Gen X and Gen Y households is growing. Based on analysis of the Federal Reserve Board’s 2010 Survey of Consumer Finances, of the nearly $3 trillion in Gen X household financial assets, 43 percent is invested in retirement and pension accounts. Among retirement and pension accounts, two thirds of assets are held in DC savings plans and 30 percent are in IRAs.

On average, Gen X consumers have contributed to their current employer’s DC plan for nine years, accumulating nearly $70,000. The median deferral rate is six percent for all Gen X consumers, but slightly higher for men (seven percent). Given that Gen X consumers are over age 30, their deferral rates are typically recommended to be above 10 percent. However, less than half (43 percent) are contributing eight percent or more.

Gen Y household financial assets only totaled $229 billion, reflecting their life stage, according to LIMRA. On average, Gen Y consumers have contributed to their current employer’s DC plan for four years, accumulating slightly less than $26,000.

The median deferral rate is for Gen Y consumers is six percent, with one in five Gen Y consumers contributing three percent or less to their current employer’s DC plan.