What Millennials Have in Common with their Grandparents (or Great-Grandparents)

rsmWhen it comes to attitudes about personal finances, millennials appear to have more in common with their Depression-era grandparents or great-grandparents than with anyone else.

That’s a key takeaway finding from research conducted recently by TD Ameritrade and published in its Millennials and Money Research Report.

Headlining the TDA results is this interesting finding: More than three-quarters of the millennials surveyed would place an extra $1,000 in a savings account rather than invest it in the stock market.

Concurrent with that conservative financial worldview, two-thirds of the respondents in the TDA survey consider themselves to be “savers.” Even more have established personal budgets for themselves and their families.

Helping to explain the similarities in characteristics between millennials and the Depression-era generation, Matthew Sadowsky, director of retirement and annuities at TD Ameritrade, put it this way:

“The Silent Generation and Millennials [both] came of age during a major financial crisis, which increases the propensity to save and financial conservativism. Further adding to Millennials’ financial anxiety is the economy, student debt, and escalating peer influence from social media.”

Social media could partially explain one finding in the Ameritrade field research – the notion that the vast majority of the survey respondents don’t feel financially secure now.

Being active on social media is much more likely to cause Millennials to compare themselves to others: Nearly two-thirds of Millennials admitted that fact (64%), whereas with Baby Boomers the percentage is less than half of that (29%).

Despite Millennials’ awareness of their financial limitations, it doesn’t seem to translate into seeking out the counsel of professional financial advisors. Instead, they’re more likely to rely on parents (38%) and/or friends (28%).

As for their financial goals, most Millennials have bought into the idea that home ownership is a good thing – and something most of them aspire to achieving by the age of 30.

They also appear to have pretty realistic attitudes about retirement, too, as about half are concerned about running out of money during retirement, and hence are open to retiring at an older age in order to maintain a decent lifestyle in retirement.

Does this mean that Millennials will be better-prepared to handle the challenges of living and growing old in our society? The TD Ameritrade survey suggests so.  Still, life has a way of playing tricks on people, so the question remains as to whether this generation will actually do any better than the preceding ones.

Time will tell.

Employees are ill-prepared for retirement … but how much do they really care?

People are ill-prepared financially for retirement.If the economic shocks of the past five years haven’t been enough to spur people to focus on their financial futures, one wonders what it would take for them to do so.

You’d think that more people than ever would be taking the time and effort for retirement  planning … but a recent study conducted by CFO Research Services and Koski Research, done on behalf of the Charles Schwab investment firm, belies that notion.

The study, which was completed in April 2012, surveyed ~200 senior finance and HR execs from mid-size and large U.S. companies, along with ~1,000 401(k) plan participants. The research found that despite the efforts by employers to educate their workers on the financial offerings available to them, not only are most employees financially unprepared for retirement, they’re also disengaged from the process.

More specifically, over half of the employers surveyed report that their 401(k) plan participants are not taking full advantage of the investment options, features and other services offered in connection with the these plans.

And it’s not for lack of trying on the part of companies. Among the tools employers are offering their 401(k) plan participants are:

  • Interactive planning tools (~93% offer)
  • In-person meetings or workshops (~81% offer)

Employers are even taking the step of auto-enrolling employees into 410(k) savings plans as a way of spurring interest.

But as the saying goes … you can lead a horse to water, but you can’t make it drink. In fact, only a minority of employees in the Schwab survey express the desire to manage their own workplace savings programs. They give numerous reasons for this, the more prevalent ones being:

  • Don’t have the time
  • Insufficient knowledge
  • Just not interested

This lack of attention on their plans is illustrated further in this stunning statistic: Three-fourths of the employees surveyed spend fewer than eight hours annually managing their 401(k) account. That’s less than 45 minutes per month, on average.

Considering that for many participants, their 401(k) plan represents the single largest category of savings they have, this is a startling finding to say the least.

People talk a good game, it seems: More than four out of five respondents in the Schwab survey claim they’re interested in receiving professional investment management advice from their employer.

But this hardly translates into action. While many companies are offering such support … only ~10% of employees actually takes advantage of such advice when it is offered.

The final, sobering finding from the survey is this: For those respondents who have attempted to calculate the savings they believe they’ll need for retirement, there is an eight-fold gap between how much they’ve actually saved and how much they calculate they’ll need to have in retirement.

It’s pretty difficult to ignore that oncoming freight train … but not if you close your eyes and cover your ears.

Home Ownership as an Investment Comes Under Fire

Home ownership isn't quite the financial investment many think it is.
Home ownership as a foolproof way to financial well-being? Think again.
Here’s an interesting statistic: Market observers including Deloitte and Oxford Economics estimate that there are ~10.5 million households in the United States that have a net worth of $1 million or more. (The number is calculated including the primary home.)

I for one was a bit surprised by the number, figuring it might be higher.

But here’s another interesting number – and one that explains a lot: There were ~12.7 million such “millionaire households” in America back in 2006.

The difference? Housing property values, of course. They’ve declined by ~15% since 2006 … which makes it little surprise that the number of millionaire households in the country has dropped by a similar percentage.

Over past several years we’ve witnessed millions of homeowners become upside down in their home mortgages. For this reason alone, it would be nice if more people’s net worth wasn’t so tied up in houses.

It’s as if we’re all farmers, the ultimate “land poor” demographic group.

Many people have an aversion to other types of investment, pointing to a stock market that has seen little net upward movement over the past decade. Others simply prefer a solid asset like owning property – or maybe gold.

But if the past few years have taught us anything, it’s that home ownership isn’t always the road to financial well-being.

In fact, real estate specialist and Wall Street Journal editor David Crook wrote an article recently (“Why Your Home Isn’t the Investment You Think It Is“) which spells out a pretty convincing argument that home ownership doesn’t work as the best investment vehicle.

And that’s not just by looking over the past few years … but over the past several decades.

It’s a thought-provoking article that’s well worth a read.