Millennials’ Savings Rate in Decline

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A troubling report from Moody’s Analytics this week details how the millennial generation – essentially young adults under the age of 35 – has a negative two percent savings rate. The age group saving the most is the 55-and-older crowd (13 percent), followed by the 45-to-54 group (six percent) and the 35-to-44 group (three percent).

These figures shine a light on the discrepancy between the stock market boasting all-time highs in recent years and the inability for the average American to save enough to even consider putting his or her money in the stock market. The Moody’s report notes that savings rate for the same age bracket in 2009 was 5.2 percent following the recession. It’s an interesting dynamic, as the date seems to suggest the savings rate declined as the financial market benchmarks improved over the last five years. Stagnant wages and unemployment have played a role, although as the Wall Street Journal points out, the math doesn’t add up when comparing the millennials with my Generation X. Millennials are earning nine percent less, when adjusted for inflation, than Gen Xers did in 1995, but yet their net wealth is down 42 percent.

Student loan debt has been a significant factor in that differential. A New America report last spring found that the median student loan debt is $57,600, up from $43,966 in 2008 (adjusted for inflation).

What stood out most to me about the Wall Street Journal article was not the alarming statistics, but rather the statements of the millennials quoted. Emily Turner, a 2010 college graduate, told the paper that she had not had the opportunity to invest as the bulk of her recent income went to trips to Central America, California, Texas, Atlanta and North Carolina for bachelorette parties, a wedding and a vacation. Curtis Holland, who graduated in 2007, is a software developer with a retirement account but acknowledged that he didn’t know the risks and benefits of more complicated investments.

The latter is understandable; the former, not so much. It’s hard to gather much sympathy when your savings account is empty because of extravagant travels and parties. I know where Emily’s coming from, though. My wife and I attended more than a dozen weddings in 2003 (ours included) and many of those trips required overnight stays to go along with wedding gifts, bridesmaids dresses, etc. I remember looking at our financial records at the end of that year, scratching my head and taking solace in the fact that everyone else our age was probably in the same boat and that once the wedding barrage ended, we would be able to beef up our savings to make up those festive expenditures.

And then my son was born. Not long after, his sister decided to join the family. As it turns out, buying food and clothes for four people costs a lot more than buying food and clothes for two people. The cheap apartment that served as our home base for the Year of Wedding Travels turned into a nice house with a hefty mortgage payment. And don’t get me started on date night, where the expense of fine wine is only surpassed by the cost of a babysitter.

The point is that every phase of our lives comes with new expenses and new reasons to spend more and save less. If we hop on that wave and let the current take us wherever it chooses, we will likely regain our footing at 55 with little in the bank to show for our last 30 years and little available to fund the latter part of our lives. Although, to be fair, at least we would have some incredibly vibrant memories to enjoy while checking out customers at Target.

Greg

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