T. Rowe Price this week released a hotly covered new study on retirement savings and spending habits. The timing was perfect, as the debate among experts rages on as to whether millennials are “Super Savers” — having more in common with their Depression-era Silent Generation grandparents or great-grandparents than their boomer parents — or financially still struggling.
The Retirement Saving & Spending Study, part of T. Rowe Price’s ongoing thought-leadership research on millennials and “Next Generation Thinking,” revealed that millennials with 401(k)s have relatively good financial habits, particularly when compared with baby boomers who have 401(k)s. While millennials are not saving at least 15 percent of their annual salary for retirement, as recommended, they do recognize that saving for retirement is important and are interested in saving more.
“It’s encouraging to learn that millennials are so receptive to saving for retirement and are generally practicing good financial habits,” Anne Coveney, senior manager of Retirement Thought Leadership at T. Rowe Price, told CNN Money. “These millennials are working for private sector corporations, with a median personal income of $57,000 and an average job tenure of five years. So their circumstances may be somewhat driving their behaviors. When they have the means to do the right thing, it appears that they often do.”
Other findings from the T. Rowe study that help to enforce the idea of the financially conscious millennial, as featured in Forbes: 88 percent of Gen Y respondents said they are pretty good at living within their means, and 67 percent told T. Rowe they save “by any means necessary.” Seventy-four percent said they are more comfortable saving and investing money rather than spending it, and of millennials who were auto-enrolled in their 401(k) plan, an equally large majority (79 percent) said they were satisfied that they were automatically swept in.
“[Millennials] have a Depression-era mindset largely because they experienced market volatility and job security issues very early in their careers, or watched their parents experience them, and it has had a significant impact on their attitudes and behaviors,” Emily Pachuta, head of investor insights at UBS, said in a Forbes interview last year.
“Millennials got the memo on the importance of saving,” Greg McBride, chief financial analyst at Bankrate, recently told The Christian Science Monitor. [“Americans Aren’t Saving Enough, But Millennials Do It Better Than Most”] “They do a good job of putting some money away for emergencies. This is a result of their financially formative years [coming from] the Great Recession.”
One in five millennials has enough savings to last three to five months, Bankrate says. Another 27 percent have some extra cash set aside that could suffice for less than three months. “What you’re seeing from millennials is a greater discipline or inclination toward saving compared to previous generations,” according to McBride.
And while many millennials are still distrustful of major financial institutions, the Wall Street Journal reports that large money managers will be forced to cut fees, offer different products, or consolidate operations in order to attract millennials to invest even more in their retirement plans, as baby boomers retire en masse and start pulling from their 401(k)s at a withdrawal rate that exceeds new contributions overall.
How big a deal is it that millennials are already investing in their retirement and savings accounts in large numbers, despite the odds against them? Huge, says Consumer Affairs.
“While young people have the advantage of a long time line before retirement, they face a very difficult savings environment,” writes veteran beat reporter Mark Huffman. “Wages have been slow to grow while many everyday expenses haven’t. With young families, many millennials face obstacles in setting aside money for the future. However, they appear to be doing it.”
April Lane is a freelance writer.