Inflated expectations and sub-par savings paints a grim picture for our future
I hate to say it, but the overwhelming majority of Millennials don’t have a clue about money. Our expectations about what we’ll earn (and what we’ll get to keep) over the course of our lifetimes are wholly divorced from reality.
I don’t say this to disparage every Millennial out there — some twenty-somethings are quite wise with their money. According to a recent USA Today study, 1 in 6 Millennials reported total savings — including cash in checking and savings accounts, IRAs, 401(k)s, and other retirement or investment accounts — was $100,000 or higher. Millennials with $15,000 or more in savings jumped to 47% this year, up from 2015. This is a good start.
Perhaps there’s some divergence between older Millennials and younger Millennials. The generation (roughly) includes those born from 1981–2000, so we’re talking about people aged 18–37 here. That’s a large age range, and those at the upper end should have more money and better financial habits than those emerging from high school.
But regardless of age, the vast majority of us have made terrible financial decisions when we’re young without knowing the consequences. It’s these choices that can lead us to wake up when we’re forty and say, “How on earth did I get here?”
What’s more, our expectations are out of whack. Just look at the numbers.
Personal Capital performed a study on Millennials’ attitudes toward money, and the disparity between expectations and reality was staggering:
Millennials expect to spend just $142,274 on a home purchase.
Considering that the median home price nationwide is around $220,000, I think we’re in for a shock.
Millennials expect to spend $325,357 on vacations by retirement and expect to work 15 years on average and then retire.
If those assumptions are correct, that’s $21,690 per working year on vacations. I can’t name anyone — regardless of age — who consistently spends that much on vacations, year in and year out.
If those figures don’t shock you, maybe this one will:
The average Millennial expects to inherit $1.06 million from their parents.
Seeing that the average inheritance in America $177,000 (split among siblings, not $177,000 per person), this presents a problem.
Clearly, something is wrong.
I can’t say for sure why our expectations differ so much from reality, but I do know that this poses a problem for our financial future if we’re to continue thinking in this way.
Research has shown that unlike any other generation before us, Millennials are deeply distrustful of advice, especially financial advice. A recent Merrill Lynch study found that Millennials are hesitating to invest money, preferring highly liquid assets — namely, cash.
The report tells of a young self-made entrepreneur in his mid-thirties, who had come to believe that no investment was safe, not even U.S. Treasuries, and so was keeping his liquid net worth — in excess of $50 million — in cash.
Where this deep distrust comes from remains to be seen, but it has severe implications if our attitudes don’t change.
For many Millennials, some of their most formative financial years occurred in the depths of the Great Recession, and it’s left a bad taste in their mouths. Buy holding the vast majority of their investments in cash and other non-income-producing assets is a fool’s mistake: by retirement age, its value will have long since eroded.
Combine this with inflated expectations about what we’ll earn over the course of our lifetimes and just how much money we’ll spend on vacations and the like, and the data paint a grim picture.
For many Millennials, it looks like we don’t have a clue.