When it comes to the millennials’ relationship with money and investing, we have no shortage of stories. Their saving and investing habits as explained by myriad studies and surveys are a bit of a mixed bag:
Their fear of the market is holding them back. About a quarter of 20-somethings are investing in low-risk, low-return investments, which are likely too conservative given their long time horizon, according to a 2015 report by Transamerica. On the positive side, 67% of this group are already saving for retirement, compared with 76% of respondents in their 30s and 40s. This was confirmed by another survey Goldman Sachs published in June, in which just 18% of millennials said they trust the stock market as “the best way to save for the future,” while 45% said they’re skeptical and would only be in low-risk investments.
But they are at least thinking about retirement. Nearly half (47%) of millennials surveyed by Fidelity Investments in 2014 have started to save for retirement, with 43% saying they have a 401(k) and 23% indicating they have an IRA. Of course, this means 53% haven’t started to save for retirement.
Those who feel they should be in the market aren’t quite sure how to hack it. A Wells Fargo report published last year found that slightly more than half of millennials (55%) are saving for retirement. And 59% of millennials say the stock market is the best place to invest for retirement. Almost half (45%) who have started saving for retirement have allocated more than half of their savings to stocks or mutual funds. But nearly 30% of surveyed millennials have allocated 25% or less to stocks or mutual funds and a quarter of them don’t know how their funds are invested.
Why this all matters: Considering the more than six-year-old bull market, those who’ve been keeping money on the sidelines have missed out on hefty gains. And it’s the 20- and 30-somethings of today most in need of guidance and diligent saving habits. Millennials will live longer than previous generations, necessitating a bigger nest egg to finance longer retirements – which could exceed the number of years they actually work. Making matters worse, their retirement will likely coincide with a curtailment of entitlements like Social Security and Medicare.
We talked to a handful of people, aged 24 to 30, and asked them about their saving habits, whether they invest and how familiar they were with investing vehicles like 401(k)s and IRAs. Answers showed a range of awareness, with some who could tell us exactly what the contribution limits for IRAs were, while others expressed the daunting prospect of having to save for retirement while paying off student loans. Yes, the clueless millennial contingent certainly exists, but there are others who will surprise you with their knowledge.
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