Ok, so I know the title is harsh. I'm a millennial too, and I get just as annoyed by Baby Boomers harping on us, our work ethic, our style, and our music (I don't like Pitbull either, Dad). But if there is one thing our generation most certainly lacks in comparison to our parents, it’s financial literacy.
Several studies released in 2014 paint a picture we should have foreseen. Fidelity Investments reported that 81% of male millennials worry about money regularly, and a staggering 98% of female millennials do the same. Many of us saw our parents get burned by the market during the Great Recession – not to mention, most of us are also saddled with an average student loan debt of more than $30,000. These factors have impacted us in one of two ways: we save money inefficiently or we don’t save at all.
It turns out the Great Recession, and the media blitz that ensued, has done so much damage to millennials’ psyche, that the majority of the money millennials have socked away is placed in low-interest paying (and sometimes high-fee charging) savings accounts. This conservative savings approach may provide a bit of relief from the risk of the unexpected but not much hope for building long-term wealth.
Moreover, crippling post-secondary education debt has left a large percent of working 20- and 30-somethings with no savings whatsoever. In fact, the savings rate for those in the 20-35 age bracket is -2%. You read that correctly: Negative. Two. Percent. I would say, "let that sink in," but if you're reading this, you are most likely not surprised.
Another study found that 7 out of 10 millennials define financial stability as being able to pay all household bills on time. Obviously, the general lack of savings is not from laziness or incompetence but merely necessity. Most millennials pay their monthly bills and household expenses using credit, and at an unsustainable rate.
What's next is nothing new. This is not the reinvention of the wheel. But if you are under 35 and feel you have all the time in the world to start saving for retirement, here is a simple fact: When you start saving has much greater impact than what you are saving. And the "saving" I'm talking about now is not your run-of-the-mill bank savings account; rather, it’s an investment account or IRA, which means buying into a growth stock mutual fund for long-term gains. That's right – the mystical compound interest.
Essentially, your time horizon (how many years you are from retirement) is so enormously important to your financial future, that if you wait to start saving, it could have a devastating impact. For example: two people (Barney and Robin) start saving and investing from scratch. Barney started at age 25 and saved $5,000 annually. Robin started at 35 and invested the exact same amount. Assuming a 6% annual return, Barney will have over $820,000 at age 65 on $200,000 contribution, while Robin will have only $419,000 at age 65 on $150,000 contribution. In comparison, a 40-year-old would have to save $14,000 annually for 25 years (total of $350,000) to have an ending account value over $820,000.
An amount of $5,000 a year may seem intimidating to a 20-something, but broken down into bi-weekly deposits, it's only $192.30 every paycheck. If you earn a $35,000 salary and already participate in your company's 401(K) with a 6% match, you're looking at only an additional $80 a monthly contribution into a Roth IRA or investment account – $18 a week!
Look, retirement and savings can be intimidating and confusing, but it doesn't have to be. Our generation is the most educated in history but also the most cash-strapped and the most gun-shy about investing. The point is that you shouldn't be; but even more importantly, if you’re over 35, you can't afford to be.
The stock market is going to do what it's going to do, which is usually go up and then down, and then up again (historically speaking, which is no guarantee of anything). But most importantly, zero dollars invested is zero dollars earned. It's time to stop thinking of your car, your house, or even your salary as your biggest asset. Your TIME is. Each month you wait to start saving and investing, your potential net worth at retirement is taking a huge hit.
So, what can you sacrifice to drum up an extra $18 a week? Your Friday night bar tab? A lunch out? Your daily latte? You can do it! Ask questions. Seek out professionals and trusted mentors. There are more avenues of financial help than ever before, and you may make a few wrong turns before you find the right one. But that's ok.
Millennials get a bad rap, and you can't do much to change others' perceptions of the group as a whole. But you can change your future. No baby boomers will be around to criticize you when you are filing for early retirement, all thanks to saving just $18 a week. Jump start your finances, and jump start your future.