It may seem hard to believe but millennials are top of the league when it comes to saving. This goes against traditional thinking that young people don’t have the same financial discipline of older generations. However, while this young generation may be putting more money aside, they aren’t necessarily saving for the same things.
Millennials are turning traditional savings on its head. Instead of focusing on saving for retirement, they are looking for financial freedom instead. So the magic number of 65 is no longer relevant. There are some young people in the workforce who still want a long career and to retire at the sort of age their parents will. But they no longer make up the majority. So pensions may not be on their radar. Their thinking is why postpone your financial freedom for the final years of life, when you might not be physically able to enjoy it?
Convention dictates that we get married, have kids and spend a good portion of our salaries on our families. But millennials are rewriting this script and either choosing to have children a lot later in life, or not at all. This leaves them with more disposable income throughout their working lives. These changing spending and savings patterns have massive implications, particularly for the financial services industry. Millennials are also challenging working norms, preferring not to work the normal 9 to 5 working week, and always based in the office. Working remotely, taking career breaks and sabbaticals are all high on the agenda. While they are not the first generation to push for more flexibility, they are doing it early in their careers.
Surveys show that millennials are saving more cash than previous generations. But they are not saving for the same things, typically for a home, kid’s education and retirement. Instead, they are saving for more short-term goals such as travel, leisure pursuits and ‘’experiences’’. While developing the savings habit early on is a good thing, money is still being spent on fun things such as dining out and fitness. Despite this short-term outlook, millennials are financial-savvy. In fact, they are possibly the smartest generation when it comes to investing their cash. They do lots of research and want to know where exactly their money is invested. But they are also realistic, and prefer short-term goals that can be achieved while they juggle new careers and paying off student debts.
The problem is that having a short-term outlook means there’s nothing left further down the track. While saving for retirement is a difficult proposition for a 20-something, the benefits of putting money aside for your future is a tried and tested formula. You can still be flexible in how you spend your money, and don’t need to tie it up for another 40 years. But you are not looking to blow it all on short term goals. Compound interest may not be as tasty as avocado toast but you will be a lot better off in the long run.