For Millennials the Struggle is Real...

When you were born may impact the success of your retirement savings more than you realize.  Each of us follows a financial trajectory through life that is largely dependent on prevailing economic, political, demographic and social conditions.  But does the generation we belong to possess different characteristics of work ethic and savings habits than other generations? 

Take my generation: the Millennial generation.  A Millennial is anyone born between 1982 and 2004. The broad perception is that Millenials live in their parents’ basement, don’t buy houses and save less money for retirement than generations before them.  The numbers support this notion. A 2013 University of Missouri study found that 63% of Millennials have NO retirement savings!  Why is my generation so far behind the rest of the U.S. population?

A further look reveals a concerning picture. Millennials came into the workforce around the Great Recession when the starting salary for an entry level job had dropped nearly 20% from its 2007 high and the number of available jobs had shrunk significantly. Not a good start.

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While Millennials are also the most educated generation in U.S. history, this is not necessarily a positive financial attribute.  Many Millenials came out of college in the worst economy since the Great Depression and are now saddled with massive amounts of student debt.  The National Center for Education found that, on average, Baby Boomers could pay off four years of college by working 306 hours at minimum wage.  In contrast, a Millennial needs to work 4,459 hours in order to wipe his or her debts clean.  More debt and less work: strike two. 

Furthermore, now that we’ve been forced to rely less on pensions and Social Security to fund retirement, retirement success rests squarely on the shoulders of the individual.  Companies have moved towards outsourcing or contracting many of their jobs (think Uber) which do not offer retirement benefits.  The National Institute on Retirement Security estimates that only a little over half (55%) of Millennials are eligible to participate in an employer-sponsored retirement plan. 

All of this matters because Millennials are less able to save when they need more. Financial market returns are expected to be lower than in the past. And Millennials are living longer, requiring their retirement accounts to produce income for a longer period than any other generation before them. 

So where do Millennials go from here? It may very well be that Millenials need to spend differently, adjust their lifestyle, take less vacation, live in smaller homes and have fewer children.  The actions of previous generations have ultimately shaped future generations and the Millennial generation is no different.  So I say to my fellow Millennials: control your destiny and welcome the challenge of planning for a successful retirement amidst difficult circumstances.  That will be something to brag about to our grandchildren!

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The 2-Minute Thought: “My Hopes Are in Cryptocurrency”

Personally, my hopes are not in cryptocurrency.  I have no hopes tied up in Bitcoin, Ripple, or Ethereum, though I am interested in seeing how they evolve.

But I just read a post by Korean journalist Juwon Park titled, “I Am a 24-Year Old South Korean, and My Hopes Are in Cryptocurrency,” and now I understand why young people have so much faith in cryptocurrencies.

Juwon Park is not a speculator.  She’s doesn’t follow markets.  She doesn’t seem particularly greedy or obsessed with getting rich quickly.  She seems to be an ordinary well-educated, hard-working young person, and a far cry from the caricature of the impatient, self-absorbed millennial.

But, Park says, making it as a young person in Korea is hard.  Seoul is expensive – more expensive than Geneva, Paris, and Copenhagen, according to the Economist Intelligence Unit.  Since Park doesn’t have family wealth or connections, she calculates it will take her 10 – 18 years of hard saving before she can buy a house.  She has hefty college loans to pay back.  She’s already worried about not being able to retire.  And all around her are signs of severe income inequality.  On the one hand are the children of chaebol (the conglomerate-owning families) who easily ascend to leadership positions in family companies.  On the other are the unemployed, the underemployed – and all of her friends working until 2 or 3 am for modest wages.

So not too long ago, Park made her first investment ever, splitting $2500 evenly between Ripple and Ethereum.  Not stocks, not bonds, not real estate -- but cryptocurrencies.  “Because,” she says, “what other options are there for wealth accumulation in this new gilded age?” 

She explains: “For young South Koreans who find themselves with no ways of getting ahead in life, the cryptocurrency market is the fairest financial playground to date, in that it doesn’t require insider knowledge controlled by a limited number of institutions and individuals – the very thing that moves the traditional stock market.”

And as strange as that may sound to some, it’s understandable that young people would be looking for something that hasn’t betrayed their trust or abandoned them yet.

Park is far from alone in her thinking.  Bloomberg recently reported that a U.S. survey found that 30% of millennials would rather own $1000 worth of Bitcoin than $1000 of government bonds or stocks.  London Block Exchange, a cryptocurrency exchange, found similar results in the UK among those under 35, explaining that “Millennials clearly feel left behind by the old system and are looking at cryptocurrencies as a new dawn.”

For opponents of cryptocurrencies, it’s easy to stand above it all and mock the herding, the FOMO, the insanity of it all as cryptocurrencies soar and then plummet.  But when people say that the deck is so stacked against them that cryptocurrency is their best shot at making it in an unfair world, we need to think about that.  Something is just not right.


The 2-Minute Thought: What Does It Mean To Live For 100 Years?

Laura Carstensen, director of Stanford’s Center on Longevity, wrote in a recent column that reaching age 90 or even 100 is well within reach for many millennials.  As a result, millennials will be the first generation ever to spend a third of their lives as what we now call “old people.”

That has big implications.  The Center on Longevity thus has taken on a research project called Sightlines to look at how longer lives will be different.  Recently it reported on how six different age groups are doing in three key dimensions: healthy lifestyles, financial security, and social engagement. 

Millennials already are living differently.   They are healthier and better educated.  Fewer of them smoke than young people did in the past, and more have college degrees.  On the social engagement front, millennials are less likely to be married with children, but more likely to be living with a partner.  More of them feel they have friends who will support them than in the past.  And as far as face-to-face interactions go, people of all age groups interact less frequently with their neighbors, but those aged 25- 34 do so the least.

The most alarming dimension of the study may be around financial security.  Across the board, Americans are less financially secure than they were in 2000, but millennials face some especially tough challenges.  More than one out of three 25–34 year olds live at or near the poverty level.  Debt levels have exploded.  More than two thirds of young people are in debt, and average student debt has increased fivefold since 1995.  Fewer than one in three millennials live in their own home -- a 20% decline since 2000.   In addition, the number invested in retirement plans or other opportunities to grow financial assets has dropped significantly since 2000.

How do all of these things relate?  That is a key question for policy makers.  Is it possible that lower marriage rates are the result of lower financial security?  Or are house-buying and marriage being delayed because we now have significantly longer to live? 

Carstensen suggested in her column that perhaps we shouldn’t see young adults still living with their parents as a sign of failure.  Perhaps it makes perfect sense for young people to stay with their parents longer if they expect to work well into their 70s.  Why leave home at 18 or 22, she asks, if you’ll be working for six decades instead of four?

She writes, “Imagine buying a house at 35 (instead of 25) and paying off the mortgage at 65, just as you approach the last third of life, offering flexibility to help children, travel, make philanthropic gifts or return to school.”