You may have to take a second glance at this statement: millennials are better at money management than their Baby Boomer counterparts. That’s right. A new survey suggests that the tech-savvy, hip generation is better at personal finance than their older peers.
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Rowe Price released the results of its Retirement Saving & Spending Study on Monday and found that millennials are better at tracking their expenses and have boosted their retirement savings in the past 12 months. However, they’re not putting away 15 per cent of their income.
Millennials Are Conservative Bores With Money
According to the survey, 75 per cent of millennials track expenses carefully compared to 64 per cent of boomers, and two-thirds (67 per cent) of millennials stick to a budget compared to 55 per cent of boomers. However, on average, boomers are saving a little bit more of their salary for retirement, but it should be mentioned that the youth have boosted their retirement savings in the past 12 months; 40 per cent versus 21 per cent, respectively.
Study authors noted this highlights how millennials are meeting their financial objectives. They listed contributing to a 401(k) and paying down their debt levels as equally important.
Essentially, millennials are pretty conservative with their money. If they have the opportunity to have additional money on hand, 74 per cent report they are more comfortable saving and investing it, rather than spending the cash.
As far as funding emergencies goes, rather than saving money for a rainy day or an unforeseen event, 55 per cent of millennials are more likely to look for aid from family and friends, compared to 17 per cent of boomers. Also, 57 per cent of millennials would use credit cards to fund a financial emergency compared to 43 per cent of boomers.
What’s interesting about the research is that it shows when millennials have the opportunity to hone in on their financial behaviors they do it. The survey noted that the median personal income for millennials is $57,000 and an average employment tenure of five years. So no, millennials aren’t blowing all of their earnings on video games, iPhones and Starbucks.
Millennials Changing Retirement Savings System
Analysts say millennials are redefining the retirement savings system.
Aimee DeCamillo, head of T. Rowe Price Retirement Plan Services, said in a press release that the primary difference between millennials and boomers is retirement plan sponsors and advisors. For instance, boomers have established a defined contribution system, but millennials are content with auto-enrolled systems.
"Because millennials are the largest generation ever within the U.S. and are entering the workforce in large numbers, plan sponsors and advisors need to begin incorporating millennials’ preferences and practices into their workplace retirement plan designs. They are benefiting from retirement plan auto-services and want more of them," said DeCamillo.
Here are some key data points for retirement savings plans:
- 79% of millennials are happy their employers automatically enroll them in 401(k)s.
- 80% want their employers’ full contribution match.
- One-third of millennials who were auto-enrolled at one per cent would opt out at two per cent; 38 per cent of millennials who were auto-enrolled at two per cent would opt out at three per cent.
With this type of thinking no wonder why the researchers are optimistic.
"They are exhibiting financial discipline in managing their spending and are defying stereotypes that this generation is prone to spend-thrift, short-sighted thinking," said Anne Coveney, senior manager of Retirement Thought Leadership at T. Rowe Price, in a statement.
How Else Can Millennials Save Money?
If you’re a millennial and you’re on a roll in terms of your savings habits then here are five additional ways you can boost your nest egg for both the short-term and your retirement years:
- Automate your savings in addition to 401(k)s; pay yourself first every paycheck.
- Start investing conservatively in the market through mutual funds and stocks.
- Build an emergency fund instead of turning to friends and credit cards. Sock away at least five per cent per month.
- Take advantage of personal finance apps, like Mint, Acorn and Level Money.
- Challenge yourself with various money challenges.
Millennials have been incorrectly depicted as wasteful and young individuals that didn’t want advice from kibitzers. Perhaps millennials couldn’t set aside cash because they didn’t have the means to do so. Now that they do they are being even more conservative than their senior counterparts.