A Wealth Plan for Millennials
For a highly educated generation, Millennials show surprising ineptitude in certain areas of money management. A George Washington University study found that only about 8% of the millennials polled had what the researchers were comfortable calling a high level of knowledge about personal finance. And since this generation lacks the secure pensions older Americans enjoyed, they'll need to prepare for retirement.
A 2015 Report found that 41% of Millennials said that in the next three to five years their goal is to "increase my overall level of savings." The good news is that Millennials have shown the greatest increase in their savings rate compared with any other generation, according to new data from Fidelity. The typical 20-something is now stashing away 7.5% of income vs. just 5.8% in 2013.
Generation X and Boomers are still saving larger percentages of salary, but have not stepped up their contributions by nearly as much.
But for Millennials, there is the added complication of carrying large debt with student loans and other sources of long-term debt – an average of $47,689. And without the financial knowledge to dig out of their debt, this could become a permanent setback.
“Young people who have a college degree today are much more likely than previous generations to start their economic life in debt,” says Annamaria Lusardi, academic director of the Global Financial Literacy Excellence Center at the George Washington University. “Universities can do a better job providing students, in particular those with student loans, with financial education.”
Young people saving for retirement do have one big advantage — time. With traditional pensions disappearing and Social Security in trouble, saving now is their safest bet..Compound growth over an extra 10 years may double your nest egg by age 70, which is why some savvy Millennials are outpacing previous generations in building wealth.
Always strive to save at least 10% of pre-tax pay—even more, if you can—and contribute enough to your 401(k) plan to get the full company match. Then add to your contributions with every pay raise. To stay on track and keep things simple, sign up for (or do not opt out of) the auto enrollment and auto escalation of contributions feature in many plans.
By starting to plan for your future now, you will have a head start on the most important savings plan you’ll ever embark on, and begin to accumulate wealth from a young age.
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