By Ken Stern, Chair, Longevity Project
Millennials are by reputation a profligate generation, ready to drop too much money on coffee shops, restaurants, and streaming services. It is a convenient trope, with admittedly some facts to support it, but it is an incomplete picture of the complex relationship between younger generations and financial security. More than others, Americans in the early stages of their careers are deeply and personally aware of the complicated long-term financial situation they face and understand the importance of finding an adequate financial solution. According to our new Longevity Project – Morning Consult poll, 65% of Americans between the ages of 18-29 see a clear and substantial link between financial security and having a successful, longer life. This percentage is higher than every other age group that we polled, a fact that repudiates the belief that today’s youth care little about planning for long-term financial stability.
The concern with financial security belies the reputation, but it is not surprising in context. Younger working Americans came of age in and around the Great Recession and have first-hand knowledge of the disruptive effect of financial insecurity. A decade on, with the stock market rebuilt and unemployment at historic lows, it is increasingly difficult to remember the details of the Great Recession but the economic dislocation at the time was enormous: 32% of the adult labor force was unemployed at some point during the recession; the net worth of the average American family shrunk by 20%; and a New York Times/CBS poll of unemployed adults found at the time that about 40% of those polled believed that their joblessness was causing negative behavioral change in their children. The children of the Great Recession have a deeply personal understanding of the impact of economic insecurity and the need to save and invest carefully for the long term. They are also one of the first generations entering the workforce at a time of increasing uncertainty about the very structure of our retirement system: the mechanisms to save for retirement; what retirement system will be in place by the time they reach retirement age; what will the role of government be in backstopping retirement; and even what will retirement look like as the nature of work changes over time. It is an uneasy time for today’s workers after 50 years of much more predictable economics, at least in the retirement context.
But the concern with retirement among younger Americans has not translated into higher savings rates. Since the Great Recession, savings rates for younger Americans have declined substantially, while remaining largely flat for older Americans. That is not necessarily a function of lifestyle choice. Young workers carry staggering amounts of student debt; in addition, because of accelerating urbanization and the concentration of attractive work in expensive urban areas, many are facing extraordinarily high housing and living costs. Circumstances, not just free spending habits, are helping to keep the saving’s rate low.
Retirement was easier to think about when a paycheck predictably turned into a pension check at age 65. But even in a complicated retirement environment, generating a higher savings rate and creating sensible individual investment plans is not only critical, it is quite possible. Some of that will be a function of finding ways to encourage better individual savings behavior. Furnishing individuals with easier and better educational tools demonstrably helps, as does getting more people into what our sponsors Wells Fargo has described as the “planning mindset,” – a mindset where people are able to set long-term financial goals and work diligently towards those goals. And better savings behavior can also be supported by policies that give individuals greater access to savings vehicles and better incentives to save. In recent months, both California and Illinois have introduced programs designed to bring retirement-savings plans to people who don’t have access through work, a policy of increased importance when more and more workers live on the gig economy or are otherwise self-employed. Fortunately, there is a whole range of common-sense policy options available to government decision makers. Dan Houston, the CEO of our sponsor Principal Financial Group, has described a wide range of mechanisms including “higher contribution rates, longer contribution periods, mandatory or otherwise pension schemes to increase coverage, shorter qualifying periods in which to receive benefits, adding voluntary pension systems to complement public systems, improvements in benefits for low-income groups, and required annuitization to ensure a stream of lifetime income.” Improving the pension system and encouraging savings behavior will help younger workers reach the financial security that they seek.