Are millennials better at 401(k) savings than their parents?
If you think this generation doesn’t know a thing about preparing for the future, the answer may surprise you.
Millennials often get a tough rap, but it turns out they’re good at at least one thing—I know, hold your breath—managing money. While you may be quick to jump to spending, they’re actually doing the exact opposite: saving, and in a big way. Mom and dad, you should be very proud.
In fact, 72% of millennials are better off financially than their parents were when they were the same age, according to a Retirement Saving & Spending Study. And the percentage of millennials saving a greater portion of their 401(k) savings is roughly double that of baby boomers—40% compared to 21%.
You could say retirement is looking pretty bright for this cohort. Intrigued? So were we. That’s why we spoke with a host of financial experts to understand just what’s giving millennials an edge over mom and dad.
Millennials have the right motivation
Having experienced the effects of the Great Recession of 2008, 80% of millennials say that financial shakeup has taught them they have to save now to survive economic problems down the road, a Wells Fargo survey found.
“Making these proactive decisions to save is the best thing you can do for yourself earlier in your career,” says Katie Taylor, director of thought leadership at Fidelity Investments in Boston.
As the most educated generation—and with debt at a record high to boot—millennials are pushing for higher-end salaries to cover student loans and a comfortable living. In general, they’re confident about the job market, and the Wells Fargo survey found 68% of millennials expect their standard of living before retirement to be better than that of their parents.
Millennials have more options and access than before
Having financial resources and advice readily available online also makes it easier for millennials to stay in the know. “Millennials have more automated options than their parents did, which make saving a default,” says Alex Benke, director of financial advice products at Betterment, an automated investment service based in New York.
“There is more transparency regarding plan information now than there has been in the past,” adds Alison Flores, a principal tax research analyst with The Tax Institute at H&R Block. “Millennials can take full advantage of the information available to them to make informed decisions about their participation in 401(k)s.”
Millennials have more time to save
Millennials, the largest share of the U.S. workforce, got an early jump start to savings compared to their parents. Taylor says millennials have parents or grandparents who had pension accounts available at their age, which is something many companies have moved away from to focus on the 401(k) model. Thus, millennials have the benefit of saving earlier than their parents, who started retirement savings later in their career.
“Many millennials have the benefit of time since they are the youngest members of the workforce,” says Taylor. “They have 30 to 40 years before they even have to think about retiring, and that long-term view is a major benefit.”
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