Younger Americans (often called the Millennial generation) 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 younger adults 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 this generation 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.
Unfortunately, these same younger Americans are not equally good at investing. While they are more aware and supportive of SRI than previous generations, the research suggests that many younger people are frightened and confused by the topic of investing in general, and often 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 younger respondents said they weren’t sure how their retirement savings were invested, and, when they were encouraged to look more closely, they reported higher allocations to bonds, money market funds and other low-return investments than their Baby Boomer or Generation X counterparts.
Investing starts with saving, so younger Americans are off to a good start. Unfortunately, investing is not a topic taught in high school – not even in college for the most part. Young people want to do good things with their investment assets as well as make a positive return – hence their enhanced interest in SRI. Yet many are too afraid of risk. Although equity markets do go down from time to time, they have always recovered and beaten their previous highs.**
*Article adapted from a Bob Veres draft, with permission.
**Past investment performance is no guarantee of future returns. Consult with your financial advisor about your personal situation.