The financial press is chock full of surveys comparing the generations in terms of their financial discipline. Perhaps the best measure of this is the amount of money they’re putting away — or not — towards their golden years.
There is indeed a generational savings gap, but it appears to be closing. According to a new survey by T. Rowe Price, baby boomers are on average saving a greater percentage of their salary for retirement than millennials are. But more millennials have increased their retirement savings within the past 12 months (41 percent currently versus 21 percent in 2014).
Based on a poll of 1,505 millennials and 514 boomers with 401(k) plans, T. Rowe Price’s “Retirement Saving & Spending Study,” reveals also that more millennials than boomers track expenses carefully (75 percent vs. 64 percent) and adhere to a budget (67 percent vs. 55 percent).
The data also suggests that millennials are, relative to boomers, better at sticking to financial priorities. And they also rank as top priorities (1) contributing to a retirement plan (albeit below the corporate match); and (2) reducing outstanding debt.
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“It’s encouraging to learn that millennials are so receptive to saving for retirement and are generally practicing good financial habits,” says Anne Coveney, senior manager of Retirement Thought Leadership at T. Rowe Price. “These millennials are working for private sector corporations, with a median personal income of $57,000 and an average job tenure of five years. So their circumstances may be somewhat driving their behaviors. When they have the means to do the right thing, it appears that they often do.
“However, they are also being affected by the flat income environment, with median raises of only 3 percent over the past 12 months. Yet they are exhibiting financial discipline in managing their spending and are defying stereotypes that this generation is prone to spend-thrift, short-sighted thinking,” adds Coveney.
Among the report’s key findings in respect to millennials:
Millennials profess to live within their means and to save by any means necessary: 88 percent of millennials say they are pretty good at living within their means, and 67 percent say they save by any means necessary.
They are more comfortable saving extra money than spending it: 74 percent of millennials say they are more comfortable saving and investing extra money than spending it.
Their employers’ 401(k) matches largely drive saving behavior: 59 percent of millennials set their 401(k) contribution rate to take full advantage of their employers’ matches, and 31 percent set their contribution rate to take partial advantage of their employers’ matches.
Most are better off financially than their parents were at the same age: 72 percent of millennials say they are somewhat or much better off financially than their parents were at the same age.
Saving for retirement and paying down debt are equally important: When asked to rank their financial priorities, about the same percentage of millennials identified contributing to their 401(k)s but below the match (27 percent) as their top priority as those who identified paying down debt (28 percent).
Most millennials expect Social Security to go bankrupt before they retire: 60 percent of millennials agree with the statement, “I expect Social Security to go bankrupt before I retire.”
See the charts beginning on next page for additional highlights from the survey.
Millennials are saving an average of 8 percent (median: 6 percent) of their annual salary for retirement, while baby boomers are saving an average of 9 percent (median: 8 percent). But more millennials have increased their 401(k) savings this year compared with baby boomers: Almost double the percentage of millennials are saving a higher percentage of their income in 401(k) contributions in the past 12 months compared with baby boomers (40 percent vs. 21 percent).
More millennials wish their employers auto-enrolled them in 401(k)s at a higher savings rate: Of the millennials who were auto-enrolled in their employers’ 401(k) plans, the survey shows, 47 percent wish their employers had enrolled them at a higher contribution rate. However, only 34 percent of baby boomers who were auto-enrolled wish their employers had enrolled them at a higher contribution rate.