It seems as though the entire world has taken to analyzing and monitoring the millennial generation. And rightfully so. According to The Hartford, there are between 80 million and 84 million millennials, and in less than ten years they will comprise 75 percent of the U.S. workforce. Hartford’s research shows millennials are more interested in saving for retirement at a young age than any generation before them dating back to the Great Depression.
A number of surveys cite increased participation in employer-sponsored retirement plans as a major component of this trend, and while that certainly is a factor, it is hardly the only driving force behind millennials’ willingness to save.
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In fact, it could be argued that the auto-enrollment provisions added to most 401(k) plans are responsible for driving the increased participation rate in employer plans as opposed to conscious saving activity. However, just because millennials are interested in saving for retirement does not necessarily mean they are doing it properly.
Understanding the millennial mindset
So what is it about millennials that makes them more savings-conscious than previous generations? Theories abound, but one constantly cited element is their collective experience from the 2008 Great Recession. Further, millennials are the most indebted generation in history, carrying significant student loan debt as they enter the workforce. With these factors in mind, it’s not difficult to understand their more conservative approach to finances.
Below is a snapshot of what the world looked like when each of the five generations currently existing in the workforce were between the ages of eight and 22 years old:
Millennial views have been shaped by political, global and cultural events. (Image: Kevin Boyles)
The rapid pace of political, global and cultural events unfolding for millennials leaps out immediately. Add in the massive explosion in internet, technology, smart devices and social networks, and there is a reasonable foundation for understanding why most millennials are radically different in their perceptions than prior generations.
Now look at what the Dow Jones Industrial Average did during each corresponding year:
(Source: Macrotrends LLC, “Dow Jones 100 Year Historical Chart”)
Since 2000, the millennial mindset around money — everything from saving it to taking out loans — has been shaped by unprecedented changes in the global economy.
Millennials have a variety of concerns about saving for retirement, and often they miss out on tax-preferred savings vehicles like Roth IRAs. (Photo: istock)
Addressing millennials’ savings concerns
A Wells Fargo study found that 42 percent of surveyed millennials say that debt is their largest financial concern — and they are making strategic moves to avoid it. The percentage of millennials who already own traditional and Roth IRAs is roughly the same as the national average for all households at over 40 percent.
According to the Investment Company Institute (ICI), 20 percent of all Roth IRAs are now owned by millennials. Such significant participation rates show a generation exhibiting a high level of savings awareness. But there is some bad news, as well. Millennials tend to shun professional financial advice and trust financial professionals and institutions much less than prior generations did. As a result, Wells Fargo found they tend to rely on advice from peers and family as opposed to professional sources.
Related: Millennials: Forcing change upon our industry
Millennials being more willing to save money than prior generations is certainly the “glass is half full” piece of the equation. Doubtless, not much additional analysis or color needs to be added to this fact — millennials are motivated to save.
The issues on the “glass is half empty” side of the equation abound but are certainly not insurmountable. In order to overcome these trust issues, advisors and those in the financial services industry need to consider a different approach and a completely new way of thinking.