Moderated by Rick Badie
The millennial generation, the grandchildren of baby boomers, has got some issues with money. Many fear the stock market, according to a Wells Fargo survey, and would rather pay down debt first than save for retirement. Today’s guest writers say such a lack of economic confidence makes millennial financial planning a challenge.
Millennials should start to save now
By Marc Daner
As millennials toss their graduation caps this summer and hope to soon land their first real jobs, they will face managing their finances while in the red.
According to a recent Wells Fargo study on millennials, 54 percent say debt is their “biggest financial concern currently,” surpassing day-to-day expenses. Forty-two percent say their debt is “overwhelming,” double the rate of baby boomers surveyed for comparison.
And while most consider themselves savers, 51 percent are putting off saving for retirement until their 30s.
We wish they wouldn’t wait. In our business, we believe in the value of regular, disciplined saving no matter the level and at every age. We also believe that starting out young on a savings journey is crucial. For this generation, saving shouldn’t be an either/or option. It’s crucial for millennials to manage their debt today and start saving for the future.
Millennials disciplined at saving early, regularly and saving as much as possible can greatly benefit from the power of compounding. It may help them create a more confident financial future.
Our study surveyed millennials between the ages of 22 and 32. Boomers surveyed were between the ages of 48 and 66. Millennials talked about the barriers they faced when it comes came to saving money. For 87 percent, they literally don’t have enough money to start saving. Another 81 percent are focused on first paying down their debt first.
About half say they aren’t very confident in investing in the stock market for retirement, but many are already in the stock market through an employer-sponsored plan. In fact, 72 percent who are saving said they are in a 401(k) plan.
Perhaps these young adults have watched their parents lose big in the stock market. This has created a lasting imprint, which is understandable. Still, we need to remind this generation that because they have time on their side, they are better positioned to ride out the highs and lows of the stock market.
This generation, like others before it, needs to set aside time to learn about investments and draft a retirement savings plan. Millennials need to take ownership of their finances in order to build a foundation for a more secure retirement.
We’re hopeful that millennials will be able to thrive, despite the economic odds they may face. It’s time for this generation to translate its optimism into action by taking some basic steps to build a financial foundation.
* Begin saving as you pay down debt.
* Create a retirement road map, either online or with a financial adviser, to set clear goals for saving and spending in order to accumulate enough for your future. If you’re saving in an employer-sponsored retirement plan, consider setting annual automatic increases to ensure this remains a priority.
*Invest a small amount in the stock market to potentially give yourself a clear picture of how compounding returns help as you build finances for the long term.
Ultimately, the key for millennials is to put a financial plan into action, so their beliefs become a reality.
Marc Daner, managing director-investmets for Wells Fargo.
Overcome investor fear with history
By Clint Gharib
Millennials are afraid to invest in the stock market. Who can blame them?
They came of age during one of the worst economic recessions in our country’s history. They graduated into an economy with high unemployment rates and watched families lose their homes and/or retirement savings. It’s no wonder they are scared and exhibit investment behavior more like those who came of age during the Great Depression than their parents.
The challenge financial advisers face today is to figure out how to get millennials excited about investing. For that, I look to history.
Periods of economic recession have generally produced the greatest innovations. During economic “good times,” companies are not apt to change what made them successful. But when tough times hit, companies and people look for ways to make more with less, which leads to innovation. Each U.S. recession was different in size and duration, but all were solved with innovative thinking that led to new technologies that, in return, led to growth. I believe we are living in one of the greatest periods of innovation and investor opportunity in history.
Let’s take a quick look back.
The Great Depression saw the birth of television, radio, home refrigerators, nylon, antibiotics and the electron microscope. The last global recession, from 1969 to 1982, saw the microprocessor, LCD matrix, pocket calculator, cell phone and PC invented as well as the creation of the Ethernet, Internet and MS-DOS. The dot-com recession in the early 2000s gave us the iPod, “cloud computing” and Internet search engines.
These are just a few examples of the innovation that came from past economic recessions. The financial impact from the investment opportunities created by these innovations was tremendous.
We have already begun to see innovative technologies resulting from the most recent economic recession that have the potential to be as revolutionary as the microprocessor. Inventions like 3D printing, the reversal of aging in cells and holographic interfaces can create tremendous investment opportunities millennials should want to capitalize on.
I believe that reflecting on the past, combined with education about investment options, is a good way to alleviate the fear and doubt of millenial investors. We still face numerous challenges, but strong investment opportunities exist, and more are being created every day by innovative thinkers. Emotions are part of our nature, but millennials would be doing themselves a disservice to allow fear to keep them from building a strong financial future and capitalizing on the innovation brought about by the recession.
Clint Gharib is founder of The Gharib Group and director of investment products for J.P. Turner & Co.