Millennial Americans are saving their money at a higher rate than their Baby Boomer counterparts at a similar age. Research from the Transamerica Center for Retirement Studies shows that nearly three-quarters of Millennials are saving for retirement at an earlier age than past generations. Half are putting away 6% of their income or more—a statistic that makes Millennials the best cohort of savers since the Great Depression, despite having to carry record high levels of student loan debt. Those who participate in their workplace retirement plans are saving 7% a year, on average.
Alas, Millennials are not doing an equally good job of investing. The research suggests that many younger Americans are frightened and confused by the topic of investing, and keep their money in their bank accounts. That’s a problem, since low interest rates essentially drop the return on investment to 0% a year. In the Transamerica survey, 25% of Millennial respondents said they weren’t sure how their retirement savings were invested, and, when they were promoted to check, they reported higher allocations to bonds, money market funds and other low-return investments than their Baby Boomer or Generation X counterparts.
There are a variety of prescriptions for the problem of being under-invested, which is much more easily fixed than bad savings habits. Millennials need to be educated about investing—a subject which is not taught in high school or college. That is why we take the time necessary to teach our clients and their families to become more comfortable with risk, understanding that, although markets do go down from time to time, they have always recovered and beaten their previous highs.