Millennials find it difficult to save for the long-term amidst economic uncertainty
Each generation, from Boomers to Gen X to Millennials, have specific attitudes towards money and saving.
TD Canada Trust Senior Vice President John Tracy and Western University Canada Department of Psychology Dr. J Bruce Morton shared the influences on Millennials, Gen Xers and Boomers’ approaches to saving for the future.
“This decision-making process is influenced by the generation to which we belong, and the corresponding cultural and economic factors that make the future appear differently to us,” said Morton.
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TD Canada Trust’s research shows that 65 per cent of Millennials continually feel they are spending too much money (versus 56 per cent of Gen X and 44 per cent of Boomers).
They are also the most likely to feel there is more they need to know about the savings and investment options available to them (55 per cent versus 51 per cent of Gen X and 45 per cent of Boomers).
“Perhaps the defining factor for the Millennial generation is persistent economic uncertainty,” said Morton.
“Faced with job market challenges and an uncertain economy, Millennials may find it difficult to envision a concrete future, making saving for the long-term seem less reasonable.”
For Millennials who feel it will be difficult to save money, Tracy recommends setting up an automated savings plan that invests a set amount at regular intervals into an RSP.
Contribution amounts can start small and increase as income grows.
“While retirement may feel far away for Millennials, it’s important to acknowledge that it’s inevitable,” said Tracy.
“With time on your side, saving even a little regularly can add up, while allowing you to take advantage of compound interest.”
Of the generations surveyed, Gen X had the most competing financial priorities, with saving for retirement (55 per cent), paying off their mortgage (44 per cent), paying off loans (38 per cent), paying down credit card debt (37 per cent) and creating an emergency savings fund (37 per cent) topping the list.
With so many priorities, it’s not surprising that 70 per cent continually feel they are not saving enough.
“Gen X individuals grew up during a period of unprecedented economic transformation marked by greater fluidity in the job market and the elimination of mandatory retirement,” said Mortin.
“These larger economic forces have led to a shift away from traditional notions of career and retirement.”
“As a result, many Gen Xers anticipate working well into traditional retirement years, undermining the incentive to save for the long-term.”
Compared to other generations, Tracy said Gen Xers often have an abundance of competing financial priorities, making it challenging to carve out money for retirement savings.
“As a general rule, Gen Xers should aim to save enough to have 60 per cent to 80 per cent of their annual working income per year to live on during retirement if they don’t want to change their lifestyle,” said Tracy. “If more needs to be saved, be diligent about finding ways to cut back on other expenses, as even a modest increase to retirement savings can add up.”
While eight-in-10 Boomers (79 per cent) feel confident they are managing their money well, the majority are still worried about having enough money (56 per cent).
“As part of the post-war generation, Boomers were not only influenced by parents who survived the Great Depression, but many have also enjoyed economic affluence and employment stability throughout their career, making saving for both the short and long-term appear sensible,” said Morton.
Tracy recommends Boomers first assess how much they will need in retirement to maintain the lifestyle they want.
“As a Boomer, even if saving for the future is a top priority, it’s equally important to know how much you realistically need to save and whether you are on track to reach your goal,” said Tracy.
“Compare your goal to the income you will have from your current savings to determine how much more you need to save.”