- Young adults born between 1980 and 1996 are the most financially cautious generation since those who came of age during the Great Depression.
- Millennials came of age during the tech bust and global financial crisis. They don’t trust the stock market or banking system and are fearful of losing jobs, homes and savings.
- Millennials are smart enough not to count on pensions or Social Security, but they tend to keep too much of their assets in cash and are not saving enough for retirement.
Remember “Failure to Launch,” the 2006 romantic comedy starring Mathew McConaughey as a 35-year-old living at home with his parents? McConaughey’s character is lazy, entitled and selfish, so his parents hire a therapist (Sarah Jessica Parker) to get him out of their house. I was thinking about the millennial generation and that movie came to mind.
Actually most millennials are not slackers; they’re diligent, conservative and cautious. They came of age during the tech boom/bust cycle and then the Great Recession. They watched their parents lose their jobs and homes and they saw what Wall Street and the banking system did to our economy during the financial crisis. The 2008–2009 financial crisis was probably the worst hit to our economy since the Great Depression. Millennials are actually very much like their great-grandparents who grew up during the 1930s—very cautious and thrifty.
In fact, a recent UBS Wealth Management study (PDF) found that millennials keep 52 percent of their investable assets in cash, whereas other generations keep only about 23 percent in cash.
Millennials: pragmatically pessimistic
Even tougher for today’s young adults is knowing that they really can’t depend on pensions or Social Security like their grandparents and great-grandparents could.
The rule of thumb has always been to save 10 percent of your earnings every year—starting in your 20s. Today, you need to save closer to 15 percent if you hope to retire by age 65. And if you’re a typical millennial with 52 percent of your investable assets in cash, then you need to save closer to 20 percent of your income for retirement.
Cash is returning almost nothing today, but historically it grows at about 3 percent a year. So $100 invested at age 25 will grow to about $300 by the time you’re age 65. However, if you take that same $100 and invest it in the stock market, you can expect your money to grow to $1,500 by age 65, and that’s using a very conservative 7 percent annual rate of return. That’s a huge difference.
Again, millennials should start saving as early as possible and set aside at least 15 to 20 percent of their income for retirement. Second, they need to get better educated. One way to do that would be to use advisors to help them understand why and how stocks or other risk assets can help them achieve their long term financial goals.
While the Millennials could use some financial education, many of our clients and friends are asking to be better technologically educated. We’re hosting a Technology Open House on October 9 from 5 p.m. to 9 p.m.
We’re going to have 20-minute sessions on using technology to connect family and finances, protecting yourself from identity theft, simplifying social media, video conferencing, accessing websites for custodians and using technology to improve your health.
Bring your iPad and your iPhone, and we’ll help you use those devices more effectively. Register online here or call Karyn at 847-441-5644 to reserve your spot. We hope to see you there.
Until next time, enjoy. Gary
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