Saving Early for Retirement
When it comes to retirement savings, millennials are off to a great start. A study by the Transamerica Center for Retirement Studies found that Millennials started saving in a 401(K) or IRA account at an average age of 22. This fact means that Millennials are off to a much earlier start than Gen Xers (27) or Baby Boomers (35), and they are more likely to reap the benefits of growth.
There is a theory as to why Millennials are such eager beavers with retirement savings. Younger Americans have both read about and seen the disappearance of traditional pension plans. Millennials are more concerned than people in other age groups that Social Security will not be there to meet their financial needs. No wonder the Transamerica study found that 66% of millennials expect their retirement income to come from self-funded sources. They have been paying attention.
Credit Card Debt
Millennials are also shying away from credit cards. A Bankrate.com study found that the majority of Millennials carried no credit cards and only 8% of Millennials had more than one card. When you consider that the average fixed rate on a credit card is 13.02% and the average variable rate is 15.7%, it makes sense to be averse to this kind of debt.
Credit cards are beneficial for building your credit score if you pay them off on-time, every month. If you don’t think you can manage credit cards well, you are better off using prepaid debit cards. There’s nothing wrong with knowing your financial management limits.
The One Dark Spot
There is one dark cloud in this picture- student loan debt. The stories about fast-growing student debt are true. The Project on Student Debt found that graduates of nonprofit (public or private) universities had an average of $28,400 in debt upon graduation. That amount equates to the cost of a new car.
There are steps people can take to limit this type of debt. In many states, students can take general education courses at a local community college and then transfer the credits toward a degree at a four year university. You can also investigate programs where loans are forgiven in exchange for public service. Also, you hope that parents, students, and taxpayers (in the case of public universities) come together to make sure that universities are run in the most efficient manner possible.
Don’t Let Stereotypes Fool You
The stereotype of flailing millennials is not only insulting, it is just wrong. In addition to good news on retirement savings and limiting consumer debt, FICO found that the number of Americans 18-29 with excellent credit scores (760+) has gone up since the end of the Great Recession. Many young people are clearly on the right path with their money.
Bad information about millennials can also lead to costly business mistakes. The retirement study cited earlier found that 90% of millennials view retirement benefits such as a 401(k) as an important consideration for whether or not to accept a new position. If an employer offers no or meager retirement benefits, that company risks losing out on talent.
Your 40-something co-workers and aunts laugh at the negative press millennials receive and remember when they read these same stereotypes about themselves. Just remember, money is no laughing matter. If you’re saving for the future and limiting debt, keep up those great habits.