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A Paradox: Optimistic Millennials Burdened by Debt

As millennials toss their graduation caps and hope to soon land their first “real job,” they will face managing their finances while in the red.

By Jim Chapman, managing director, Wells Fargo Institutional Retirement & Trust

According to our recent Wells Fargo study on millennials’ attitudes toward savings and retirement, more than half (54%) 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 boomers surveyed for comparison.
Our Wells Fargo 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 came to saving money. For 87% of them, they literally didn’t have “enough money to start saving” and another 81% were focused on paying down their debt first.

Even with those barriers, 61% of millennials say they consider themselves to be “savers.” But there is a difference between perception and reality, and the fact is, just about half (49%) have actually started to save for retirement. The remaining 51% are putting off saving for retirement until their 30s.

In our business, we fundamentally believe in the value of regular, disciplined saving no matter the level and at every age. We also believe that starting out young in a savings journey is crucial. For this generation, especially, saving shouldn’t be an “either or” option. It’s crucial for millennials to both manage their debt today and start saving for the future. This is a way for them to apply their multi-tasking expertise to their finances!

All the benefits of starting young are hard to make up later. Millennials who are disciplined at saving early, regularly and saving as much as possible can greatly benefit from the power of compounding. Ultimately, it may help them create a more confident financial future.

Skeptical of the Markets

About half of millennials (52%) 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% 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, and this has created a lasting imprint, which is completely 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.

In our survey, we found that millennials are also not sure how much money they have invested in the stock market. That’s probably very typical for this age group and for many adults of all ages. We think this result points yet again to the importance of education and planning. This generation, like others before it, needs to set aside time to learn about investments and draft a retirement savings plan. For many people, that exercise feels more comfortable online with various tools, calculators and other resources just a click away. Others may want to handle this in an employee group meeting about benefits or in a one-on-one appointment with an advisor. No matter the method, millennials need to take ownership of their finances in order to build a foundation for a more secure retirement decades from now.

3 Steps Toward Building a Financial Foundation

  • Begin saving as you pay down debt. Set up an automatic deposit into your savings account so it builds up on a regular basis.
  • Create a retirement roadmap, either online or with a financial advisor, 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 over time.
  • 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.

Houston-based Jim Chapman is a retirement expert and managing director serving Wells Fargo Institutional Retirement & Trust clients.

 

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august, 2021

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