Young adults in their early 30s and younger, known as millennials, are demonstrating stronger saving habits than their siblings in the Gen X group and maybe even their Baby Boomer parents.
A recent study by Fidelity Investments of 13 million participants in 401(k) plan it administers found more than 400,000 persons in the group save an average of 11% of the salaries and another 4% comes from a company match. The average salary of those “super savers,” as Fidelity calls them, is $73,000 a year.
The findings of the Fidelity study were published by Bloomberg on Sept. 16, 2015 and are not unlike studies by other financial groups in recent months. Millennials are defined as 18 to 34-year-olds in the Fidelity study.
Bill Emmons, an analyst with the Federal Reserve Bank in St. Louis, has studied millennial saving habits, finding “in simplest terms, millennial saving habits are at a slightly higher rate than the Gen X group, which have done a lot more borrowing.”
“Young people do have a higher saving propensity,” Emmons said. “That’s a positive message” especially to younger age groups.
Emmons said he has found that millennials don’t have the same enticements or challenges as the Gen X group.
“Gen Xers came of age at the time of the housing boom. They acted aggressively and took on more mortgage debt and were borrowing more for college at a time when college costs were increasing,” Emmons said.
“Then the bubble burst,” he added.
Millennials are not moving into the housing market as fast as the previous generation but it may be too early to know what will happen with millennials on that score, he noted. Paying off debt, such as a person’s investment in education, is paying off debt because the person paying off his college loans is increasing his net worth.
Emmons isn’t sure what the motivation is for better saving habits among millennials. They may be looking at the experience of older persons, such as Baby Boomers who may be their parents. They get their information from other generations and other sources, he noted.
Research has shown that persons born about 1940 are doing the best financially; those born in 1970 are doing the worst, he said. Persons born in the 1920s and 1930s experienced a “confluence of issues” — the Great Depression and World War II — that shaped their thinking and their view or money.
“There was a rising tide of prosperity after World War II,” Emmons noted, in housing, wages and other aspects in 1950s life. “The economic recession that we are coming out of now is no where near the economic trauma of a depression or world war.”
Turning to the wars of the early 2000s, he said, “There is a difference in the way society suffers the pain of war or other issues. The experiences are different across the age groups.”
The future of Social Security may be helping shape the young adult view of saving, given the concern on how much longer there will be money to pay retirement benefits. Social Security was intended as a supplement to pension plans and personal savings, like one leg on a three-legged stool, Emmons said. And, among millennials, that may be part of the discussion for saving more, he added.
“You can’t paint millennials or other groups with a broad brush,” he said. “There are differences across race and class. People with more education have done better. College still pays off, even the expense.”
Other findings in the Fidelity study:
• The “super saver” had a salary 23% higher than the non-super-saver, who saves on average about $4,900 less a year than the super saver.
• Millennials saving less than 15% but saving consistently for 10 years had balances of over $100,000. And there are young workers earning six-figure salaries who don’t save at all.
• The key is being proactive and staying the course when markets get chaotic, as in recent weeks.