Why Millennial's are better at saving than Investing
Between October, 2007 and March, 2009, the S&P 500 lost 57 percent of its value. At the same time, the housing crisis destroyed home values in epic proportions, with many areas seeing real estate prices plunge by a higher percentage than the S&P. The financial carnage wiped out the savings of millions of Americans, cost millions of jobs, and forced the nation into a foreclosure crisis. 401(K) plans lost so much value that many people began calling them 101(K)s. The oldest Millennial's had just begun their working lives. Many promptly lost their jobs and money. If they had bought any real estate of started investing in retirement plans and the stock market, they bought at the top of the market and bore the full brunt of the crisis. Younger Millennial's were still in school. They watched their parents lose their retirement savings, homes, and jobs. They watched college funds be devalued almost overnight. Having experienced these dire times, Millennial's have become a bit like depression-era people. Millennial's have a preference for cash and lots of it. They may not be literally stuffing their mattresses with currency, but they are socking money away more than the previous three generations.
Cash is king: In the Millennial realm, he or she who has cash reigns. Psychologically, this makes sense. If you came of age in a time of uncertainty, you are more likely to value security. Gen Xers and Boomers grew up in a time where buying a home was a certain path to long-term security. Jobs lasted decades or entire careers. Investing made sense. Over the long term, everyone knew stocks gained far more than bonds or savings accounts. Movies like Wall Street promoted the idea that the big money was on Wall Street, and you had to play the market if you expected to get wealthy. Despite their young age, 42 percent of Millennial's invest conservatively, a higher portion than Gen Xers and Boomers, even though the older generations are much closer to retirement. This is a strong statement by Millennial's. They don't trust the investment markets. Millennial’s are remarkably good at saving: Millennial's bend toward financial conservatism extends beyond investments. They also save more than Gen Xers or Boomers ever did. Millennial's average an 11 percent savings rate. When their parents or grandparents were their age, the U.S. savings rate was often negative. The discipline shown by Millennial's demonstrates that they feel the need to remain financially independent. They can no longer rely on an employer to provide salary and benefits into the farflung future. They also feel they need to make their own plans for retirement. Growing up at the time of the downfalls of Enron and Bernie Madoff, they feel a need for more self-reliant. Student debt: Many Millennial's also carry heavy student loan burdens. Being deeply indebted at such a young age can certainly cause anyone to be more conservative with their money. No one wants to default on their loans or stress about coming up with the payments every month. If Millennial's live too close to the edge, they are likely to be forced to defer loan payments or even default, which means those student loans may be hanging over them for a very long time. Mark Angelo is the Co-Founder of Yorkville Advisors.