Which Generation has a Better Handle on their Long Term Financial Goals

better handle on finances

Long term financial goals for Millennials vs. Gen X

There is a common perception among our society that Millennials have the ‘You Only Live Once (YOLO)” attitude and are risk takers in all aspects of their life. However, Millennials are anything but when it comes to their finances. According to Financial Finesse 2013 Generational Research Report, the tech savvy Millennials “continue to be stronger than their older Generation X counterparts in many areas of day to day money management.”

Those under 30, commonly labeled the Millennial Generation, are doing a relatively good job managing their current cash flow on a day to day basis. In the age of the internet and now social media, technology is the leg up for Millennials. Accustomed to budget friendly websites, comparison shopping, and peer comparison, Millennials use what they have at their fingertips to do their own research and ensure they are getting the best deals. So when it comes to short term cash flow, Millennials’ top priority is making sure they have more money coming in than going out.

Additionally, the availability of parental support from the baby boomers (ages 45-65) has steadily increased in recent years, as 30% of young adults (ages 18 to 34) that are employed full time live with their parents or have moved back home temporarily. Thus giving Millennials extra time to build savings.

Financial Strengths

73% have a handle on cash flow
88% are paying their bills on time each month
62% are regularly paying off their credit card balances in full
52% check their credit rating on an annual basis.

However, although Millennials may not be sitting on the same amount of debt as their older counterparts, they tend to overlook a long term perspective that makes planning for retirement a top priority. According to the same Financial Finesse study, Millennials “suffer from a relative lack of investment knowledge” making long term financial goals their biggest challenge.

Financial Weaknesses

Only 67% say they have a general knowledge about investments
Only 37% have taken a risk tolerance assessment
Only 29% rebalance their investments
Only 83% are contributing to their retirement plan at work
Only 29% have run a retirement projection
Only 17% say they are on track to replace 80% of their income in retirement
Only 26% contribute to a traditional or Roth IRA
Only 29% are confident their investments are allocated appropriately

To get Millennials on track, they need to bring their long‐term goals into focus. This generation favors the opinions and advice of peers and first‐hand users over those of traditional experts. Seventy‐five percent have created a profile on a social network and are more likely than any other generation to visit the website several times a day. Finding a way to incorporate a social platform with an educational platform allowing Millennials to share their experiences, with hands‐on applications, as well as testimonials and peer recommendations, will resonate well with this generation as they believe the classroom is a thing of the past. Thirty-nine percent of Millennials see the future of education as more virtual.

Gen X

Generation X, ages 30-44, is considered the more self-reliant generation. They are the first generation to grow up with both parents working outside the home and have had independence and freedom at a young age compared to other generations. That, coupled with being the first generation to grow up with computers, has given Gen X the ability, as well as the need, to control their own lives, including their financial goals.

Gen Xers, on average, have a higher income than their younger counterparts and tend to be homeowners and/or married with a dual household income. However, this generation was hit the hardest by the Great Recession, losing quite a bit of their savings, most significantly when the housing market collapsed. This creates a struggle for Gen X in prioritizing their financial responsibilities. This group is paying down debt from their self-reliant 20’s but with more immediate obligations, such as mortgage payments and young children, it becomes difficult to balance. Those more immediate expenses tend to seek priority over their day to day cash flow.

What holds Gen X back is not their desire to save, but rather their debt that hangs on them like a noose around their necks. Forty-nine percent have debt that keeps them from saving for emergencies, children’s college tuition and ultimately retirement.

During the financial crisis: *

15% of Generation X made early withdrawals from their retirement accounts
23% stopped contributing to those retirement accounts
22% stopped contributing to college accounts

* 2012 report by the Insured Retirement Institute.

It may help Generation X to be aware of the vast number of available college financing options. Those options make saving for college a lower priority than saving for their own goals like retirement, an emergency fund, and of course, paying off debt. It is important they learn to balance competing demands and meet long term goals while faced with immediate growing priorities.

Gen X’ers rely heavily on education and take advantage of tools that are made available to them. One tool this age group has taken advantage of, and had a high level of confidence in, is the stock market, which may be why they are struggling to meet their long term goals. Many Gen X’ers largely missed the huge run up in stock prices in the 80’s and 90’s, and may need more aggressive retirement investment strategies or alternatives to compensate. They understand the importance of investing and are not afraid to do so aggressively.

Both generations need to be realistic about their finances

Both generations view “old age” at somewhere around 78 or 80 and the life expectancy of a current 60 year old, according to government statistics, has reached a record 84 years. But with both Gen Xers and Millennials facing the impending shortfalls of Medicare and Social Security, how will either generation prepare accordingly? This, combined with the reduction in employer‐sponsored retirement benefits, makes both groups subject to suffer shortfalls in their own savings unless drastic measures are taken.

Both generations have had some help from the Baby Boomers along the way—whether through life insurance, college savings or financial support post college. But are either the Millennials or Gen X’ers going to have the ability to do the same for their own children?

Although Gen X may not have as much time as Millennials for their savings to compound and grow, the silver lining is both generations have time on their side. But time is money, right? Start planning your financial success today.

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Sherman Wealth


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