Broker Check

How Different Generations Save Money

| November 10, 2020

By Kristi De Rycke, Registered Assistant

I was having lunch with a group of millennial friends in their 20s. They were openly discussing saving and investing. I sat quietly (which can be hard for me) and just listened. Keep in mind that they are not in finance. I was so surprised at their knowledge of investing. They also had very creative ideas on how to save money on day-to-day expenses. There are often critical comments in the news and magazines about Millennials and their choices. It sparked my curiosity on the validity of the claims. Are they any better or worse than previous generations? With a personal fascination of behavioral finance, I started to delve into which generation is the best at saving, investing and retirement planning. I came across an interesting survey completed by Transamerica in 2018 and published in 2019. This broke down the behavior of Baby Boomers, Generation X and Millennials. The findings were intriguing. Which generation is winning? Let’s find out. 

I am a true believer that if you are going to look at behavior you need to look at context. While we are starting with Baby Boomers, we need to look at what shaped their lives. Baby Boomers are defined as being born between 1946 and 1964. Keep in mind that this was the post-war era. These children were raised in households with parents that saw genocide during the war including the bombing of Hiroshima and Nagasaki and death camps like Auschwitz. These children were raised by parents who remembered vividly the lessons and stories of the Great Depression. They grew up during the civil rights movements and watched the space race. During their lifetime, President Truman raised the minimum wage from 40 cents to 75 cents. According to The Balance, in 1960 nearly half of the private sector had pensions that provided guaranteed monthly income for life after retirement. In 1978 when the older boomers were just entering the work force, Congress passed the Revenue Act resulting in the birth of the 401k. 

Generation X is defined as people born between 1965 and 1978. This was the era when the divorce rate doubled and the “latchkey kid” term was defined. These kids saw the rise of the personal computer and the internet. Believe it or not a child born in this era remembers a time with limited access to the internet based on hours of usage. We only had so many hours of internet per week before we had to pay substantially more. Cell phones became significantly more popular starting with bag phones that had to be plugged into the cigarette lighter and each minute was expensive. These children watched the news about the AIDs epidemic. People in this generation are currently in the “sandwich generation” as they are often supporting their own children as well as sometimes their parents. This includes young adult children who are struggling to find employment and get on their own. 

Millennials were born between the years of 1979 and 2000. These kids and young adults had unlimited access to current events on their phones, IPAD and computers. Social media has been a big part of their development. Unfortunately, Millennials have had front row access to watch coverage of the mass murders at the Columbine High School, Virginia Tech, Sandy Hook Elementary, Oklahoma City bombing and 9/11. They either were part of the great recession of 2007 as adults or watched their parents as they went through it. Millennials entering the work force during this time had increased difficulties finding good jobs. According to the Urban Institute 22% of people 25 to 34 are living in their parent’s basements.

Now that we have the context of what may have shaped each generation, how do the 3 compare? Let’s start with the things we are all doing the same:

  • All workers estimated that they would need nearly ½ a million to retire. Baby Boomers and Generation X estimated $500,000 with millennials stating $400,000.
  • Over 60% of all workers say they are very involved in monitoring their savings and investments but only 1 in 5 of all of them have a written financial plan.
  • 1 in 3 workers do not expect Social Security, pensions and savings to be enough.
  • 1 in 10 workers report not having any retirement savings.
  • 1 out of 4 are not offered retirement benefits from their employer.
  • Overall, 77% who are offered a 401K participated in it with median amount of 10%.
  • 59% are saving for retirement outside of work in IRAs or taxable accounts.
  • 2/3rds of workers don’t think they know as much as they should about retirement planning and an equal amount want more retirement education.

So now let’s see where we differ.

  • Baby Boomers are more likely than the other generations to indicate they are debt-free which seems fair as they have had significantly more time than younger generations. However, this is only at 22%.  They also have saved the most in their emergency savings at $10,000.  Retirement is their top financial priority and they have saved the most at a median of $152,000.  Baby Boomers are the most likely to feel confident that Social Security will be their primary source of income in retirement.  This generation is also the most likely to use a financial advisor.
  • Generation X really falls in the middle. They don’t get as much hype or criticism as the other two generations.  They also truly are in the middle on almost every issue in the survey.  Generation X is the most likely to have access to a 401k which makes sense as 401ks became readily available in the 1990s.  They also are most likely to participate in the 401k at 82%.  However, they contribute the least even compared to the younger millennials. Generation X also is less likely to have a back-up plan if their financial situation changes. 
  • Millennials are most likely to frequently discuss savings, investing and retirement planning with friends and family. (Ironically, the lunch with my millennials co-workers talking about saving money and investing was what motivated me to write this article). They also most readily admit that they don’t know as much as they should and actively seek out education. Millennials are more likely to be struggling with finances with 48% just trying to make ends meet. 25% have student loans and 7% have payday loans. 48% admitted feeling anxious and depressed and 36% were isolate and lonely. Their primary financial goals right now are covering basic living expenses and building an emergency fund which the median was $2,000. Surprisingly, they beat out Generation X and an almost tie to Baby Boomers for super savers with 38% contributing more than 10% of their salaries in retirement plans. Millennials are most willing to transfer jobs for a better retirement plan. They also are most likely to contribute to a Roth 401K which means they will pay the income taxes now and let it grow and take withdrawals tax-free.

The results did not produce a clear cut “best” or “winner”. It really underlined the fact that each generation has strength and weaknesses. We can learn from each other and our experiences. I do not know about you, but I plan to keep my eyes, ears, and mind open during discussions in mixed company. 

19 Annual Retirement Survey found at Center for Retirement Studies, 2019 © Transamerica Institute®, 2019

By Greg Johnson

It is always interesting to me to see the differences in generations that we work with. At the end of the day everyone is somewhat molded from the upbringing and experiences in life. However, I truly believe everyone is in control of their own financial futures. Taking the time to put together your own financial plan and working with a qualified advisor can help you get to where you want to be. I love the idea of Millennials educating themselves, but I sure hope they implement what they learn. Do not overthink the think, overdo the do and get to saving money and developing your long-term financial plan to reach your goals.