Not so long ago, a major American car company ran advertisements featuring Ringo Starr (OK, maybe it was a bit ago) telling the consumer that "this is not your father's Oldsmobile."1 The point of the slogan from Oldsmobile was to tell the consumer that they had access to a better version of their product than what was available to the consumer's father or, to put it more bluntly, they desperately needed the target market (the younger generation) to move away from having the following thought every time they see the company's brand on a passing car: "Ugh…that behemoth is something only my father would drive."
So in that same vein, I'll mention to my younger readers that you probably won't experience "your father or your mother's retirement." And I think that's okay, because you're probably not going to have your father or mother's working career either. To quote the Greek philosopher Heraclitus, "You cannot step twice into the same river."2 So, if you're looking backward or lamenting that you won't have the same luxury of retirement afforded your parents or grandparents, it is time to turn your head and, as Heraclitus might say, let newer waters flow over you, as they are not of the same river and you are not the same person. And that, my friends, is as existential as we're going to get in this piece.
"The Millennials overtook the Baby Boomers as the largest generation in the United States in 2015."
As there seem to be at least five different monikers for the enigmatic cohort of Americans born between 1980 and the mid-2000s, for the sake of this article, I have chosen to define the younger generation as the millennials. One could argue that other generations would also be considered "younger" to me, and one would be right. The Millennials overtook the Baby Boomers as the largest generation in the United States in 2015.3
And, as a massive but still relatively young cohort (the oldest are still in their early 30s), they have been and will continue to be extensively studied and scrutinized. It will be in the interest of every kind of corporation to understand not only what this generation wants and needs as consumers, but also how to communicate effectively with millennials, how to help them succeed as employees and a host of other ways that this group will change the face of the work force moving forward.
And did I mention they'd be studied? In preparing for this article, I've spent hours reading through a number of studies regarding Millennials, prepared by everyone from the Centers for Disease Control and Prevention to Pew Research Center. Upon review, I can attest that there's a study out there about nearly everything Millennial.
But what does it all mean when it comes to your money, financial planning and investing? I have included a few key takeaways below:
The Glass Half Full Perspective – Millennial Generation Research
From a Pew Research study on Millennials: "Millennials are less trusting of others than older Americans are." This data was compiled in response to the question, "generally speaking, would you say that most people can be trusted or that you can't be too careful in dealing with people?" Overall, only 19 percent of Millennials say most people can be trusted, compared with 31 percent of members of Generation X, 37 percent of those in the Silent Generation and 40 percent of the Baby Boomer Generation.4
The Glass Half Full Perspective: Good for you, Millennials! When it comes to finances and planning, seeking advice can be very helpful in the long run, but it's all about receiving the right advice. In other words, it also pays to do your own research and challenge the advice you're receiving. If it sounds too good to be true, it probably is, and anyone offering you the single magic bullet to finance the retirement of your dreams is selling something.
For example, if your employer offers a company-sponsored plan, getting involved can be an easy way to begin saving, and the money you place in these plans can become an integral part of your comprehensive financial plan. That said, you might do well to avoid relying completely on an employer to provide for your retirement needs; instead, consider employer contributions and/or plans as only one piece of your overall plan.
"... You might do well to avoid relying completely on an employer to provide for your retirement needs; instead, consider employer contributions and/or plans as only one piece of your overall retirement plan."
If your company offers it as part of their savings package, a Roth 401(k) option may be something to consider. A traditional 401(k) defined contribution plan, which allows a company's employees to contribute to an investment plan up to a certain annual limit on a pre-tax basis, which means that the investor gets a tax break in the short-term, but must pay taxes when they withdraw the money in the future. In contrast, a Roth 401(k) allows employees to invest on an after-tax basis, meaning that, although the money is taxed at the time of the contribution, when the money invested (as well as any earnings) is withdrawn in retirement, it will be tax-free.5
Roth 401(k)s can potentially be attractive to those in younger generations as, in general, they begin investing when they are in a lower tax bracket. Thus, money put into a Roth 401(k) would be taxed at the lower bracket when contributed, and not upon withdrawal (when they are, hopefully, in a higher tax bracket).
From the Centers for Disease Control and Prevention: According to the 2016 National Health Interview Survey (NHIS), the percentage of people age 19-25 who lacked health insurance at the time of the interview fell from 31.4 percent in 1997 to 14.7 percent in 2016."6
The Glass Half Full Perspective: Again, this is great news, and here's hoping that this number moves even lower over time. Of course, health care in the U.S. is a subject that has and will continue to be debated for some time. I'll stay out of the political fray on this and simply say that more young people with health insurance is a good thing from a financial planning point of view. Given their young age, Millennials have a long swath of time in which an issue could arise. More Millennials covered by insurance could lead to fewer Millennials in financial peril because of an unanticipated medical emergency.
From Jackson's 2017 Investor Education Survey: In Jackson's latest research on the topic of financial education, we found that 77 percent of respondents age 18-35 are somewhat or very interested in furthering their financial/investing education. Furthermore, 44.6 percent of respondents in this age group cited "saving enough for retirement" as their top financial concern.7
The Glass Half Full Perspective: My thought on this? All good news - showing an interest in financial knowledge is a positive sign that Millennials are interested in taking charge of their financial futures by educating themselves about money and investing. And the fact that nearly half of our youngest survey respondents are already concerned about having enough money in retirement means this generation appears to be thinking seriously about the future and considering the challenges they may face many years down the line. Hopefully, those concerns will give rise to action so the next generation of retirees can be better prepared to pursue financial freedom than the current or previous generations.
I think it's only a matter of time before we begin to see the influence of the Millennials move throughout everything - even in our common lexicon. Soon, the automated phone response at your local bank may ask you to enter your account number followed by the hash tag, rather than the pound sign (wink). As I work with members of the younger generation, I wanted to end with a few final observations along these same lines.
A Millennial colleague of mine was moving to a new home around the Christmas holiday, and I thought a Christmas CD might be a nice housewarming gift – Nat King Cole for instance. Before buying it, I thought I'd better check to see if she already had one - I mean, don't most people own a Nat King Cole Christmas CD? She said, "Let's see, when was the last time I bought a CD - like, never!"
Sarcasm aside, it might make sense for all of us to remember how different we can truly be depending on not only the generation we ended up in, but also where in the country or world we grew up, who our parents are and a multitude of other factors. Though we are all unique and our perspectives may be different, that doesn't mean we can't connect and engage, whether we are listening to CDs (that's a compact disc for those who may have completely missed it), mp3s or whatever brain chip comes next.
"So, stop spending time wondering if your retirement will be like your mom's - it won't. To me, that sounds like it could be a major positive."
Observationally, I've also noted that my Millennial colleagues are far more interested in telling me about experiences - they went skiing, hiking, biking, etc. - than they are in buying things. So saving for retirement could be, for some Millennials, about making sure they have enough money to cover their amazing adventures, not their possessions.
So, stop spending time wondering if your retirement will be like your mom's - it won't. To me, that sounds like it could be a major positive.
But then again, I tend to see the Glass Half Full.
Investing involves risk, including possible loss of principal.
The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.