There has been a lot said about how different millennials are approaching their finances compared to their parents and ancestors. Earlier this year, the RBC’s Wealth Management study highlighted the difference; while baby boomers were focused on building wealth, millennials are more about finding their purpose and living the most fulfilling lifestyle. The reality is that life is different for millennials than it was for baby boomers at their age. From the way they approach saving for their first home to their take on retirement planning, the entire personal finance game is different today, and it’s impacting their financial future in both good and bad ways.
Financial Success Is Being Defined Differently – It’s About Income Streams And Not Wealth Accumulation
One positive change in approach has been the shift in focus and importance being placed on creating income streams early on rather than simply saving. From an early stage in their careers and lives, millennials are opting to invest and start supplementary income streams, which means they are setting themselves up for retirement. While they may not have as much banked for their retirement costs, they are ensuring they have ongoing income streams that can provide this. Creation of income streams is one of the most common and recommended suggestions when it comes to retirement planning. However, one must not discount the benefits of having some financial backing should the need arise, and savings allow you to build this. Therefore, it is more about maintaining a balance between building savings and creating further wealth.
Millennial Men Are Saving More For Their Retirement, But Its Priority Has Slipped
Although young women begin putting away money at an early age, a PNC survey says that men end up saving more. Females have saved an average of $66,700 for their retirement, while men have stashed away $101,500 for their plans. Retirement savings are not the only place where males are leading the saving habits; they are putting away more for a rainy day fund as well.
However, interestingly they are still behind on their retirement savings, and risk having to work well past retirement. Millennials are also a lot more reliant and comfortable with credit, which creates an interesting paradigm. While the use of credit – and particularly consumer credit – is by no means a bad thing, it is the proper management of said credit that ensures success and minimal long term effects. This includes being informed about the products available. With so many options and costs, it is easy to skim over or choose the first option offered, which could end up costing more. What’s clear is that the generation has grasped the concept for saving successfully; it is the prioritization that has changed.
Confidence In Earning Ability Has Shot Up
Based on past comparisons, millennials are not as well off as their older counterparts were at this stage of their lives. In fact, those between 25 and 34 earn lower salaries than Baby Boomers did and their assets are halved, yet they are more confident about their financial futures than older generations were. This confidence actually begins with the personal finance knowledge levels. While almost all millennials understand the importance of financial literacy, 73 percent of them say they believe their financial knowledge levels are on par and 76 percent of millennial men believe they are in control of their finances.
However, those levels are not actually true; around a quarter of them actually answered a financial literacy test correctly. There is also the increased confidence when it comes to earning ability and hopes of retiring early. While their parents were overly cautious and more focused on securing themselves against the future, millennials today are more relaxed with their savings and retirement approaches because they think they will always be able to secure income, and at a level that will allow them to achieve financial goals well before the state retirement age. Their confidence and hands-on approach when it comes to their finances can also act to their detriment, while many of them refraining from the use of professional advice. However, sitting down with a financial planner can help you map out your goals clearly and give you much-needed insight that only industry experts can share. While it is not needed, it can add some value to your financial life.
In terms of their financial life, the younger generation seems to have a more robust, can-do attitude compared to their parents. While it is great that they have grasped the need to save (men in particular) and are using new innovations to their advantage, there are still some age-old adages that remain relevant today. Simple guidelines such as retirement planning, building a nest egg, and harnessing the power of financial advice if needed will only serve to enhance your personal finance goals and ensure you are better prepared for the future.