Millennials: irresponsible with money? The truth, here

Last updated on 5th December, 2018 at 02:38 pm

There’s a common misconception that the so-called ‘avo-toast’ generation is irresponsible with money and unconcerned about future outcomes. Sanlam’s 2018 Benchmark Survey shows this simply isn’t the case: for the majority of millennials, saving for big long-term goals is top of mind but can seem unfeasible.

Gen Y (born between 1981 and 1998: currently aged 20-37), spans a vast age bracket across various life phases. With major expenses like moving out, lobola, weddings, buying a car – or even a house – and thus more to budget and save for, the short- to medium goals inevitably trump the long-term goals. So how does a job-juggling, frequently family-supporting, debt-saddled generation of savvy side-hustlers win at the long-term savings game? By capitalising on their strengths and acknowledging areas to grow in.

Millennials: need-to-knows

Millennials are the best-educated generation to date, but they’re drowning in debt, with limited employment opportunities, lower real earnings and less disposable income. And they’re engaging the job market in a completely different way. The average person will have 12 to 15 jobs in a lifetime due to a rapidly changing employment market. With millennials comprising over 40% of SA’s workforce, this has big ramifications, particularly for retirement and savings preservation.

They’re also less attached to conventions which means they’re charting new territory and facing a fresh flush of socio-economic challenges. We know they’re using tech tools to thoroughly investigate potential purchases via snackable online content in bite-sized bits.

But they’re also overconfident despite low financial literacy and limited financial education. In fact, 60% of millennials believe they don’t need help – many are untrusting of financial services, so they tend not to approach financial planners for help with achieving their goals. And to date, they’ve not been a focus for financial planners due to their low asset values.

This is a pity, especially as millennials do want to save and with their multifaceted goals, and their drive, are primed for good advice and a steer in the right direction.

What stops millennials from saving?

In terms of big goals, many millennials want to go on holiday, buy a car and/or property, get married, pursue further education, grow their net worth and achieve financial independence. Most of these may require saving and investing over a medium term (one to three years) or a long term (usually anything longer than five years).

The barriers to achieving these goals include:

• Seemingly never having enough money at the end of the month to put something away.
• Not knowing and understanding the options available and potentially not picking the most appropriate savings vehicle.
• Difficulty understanding and making the right investment choices.
• Cashing in investments early to meet other obligations, including debt, or for other priorities.
• Having a number of financial goals but not knowing which one to start with.
• Not being able to imagine an event that seems so far in the future – like retirement.

So, what tips should millennials follow?

• Don’t be put off by how little you’re saving every month. Even as little as R150 can make a big difference. Start with anything you can afford.
• Spend time researching different savings vehicles and investment options. Seek advice as these things can get complicated and having a big-financial-picture can be helpful.
• Ensure you have an emergency fund in place that can help you keep on track for your bigger goals or recover quickly when things go awry.
• Try not to spend savings on anything other than the purpose they’ve been earmarked for.
• For example, make sure you understand all the implications of withdrawing retirement savings early when you change jobs – you may be hurting your future self.
• While it’s best to clearly define the long-term goals you’re saving for, even if you haven’t done so, just start saving – you’ll thank yourself later when you’ve figured out your goals.
• Beware of lifestyle creep – especially when you’re starting out. You probably won’t have much money to save in the beginning, but what you do with your next increase and the ones thereafter is critical.

Perhaps the most exciting attribute of millennials is their innate curiosity. Use it. Research extensively and ask questions. Find a financial planner who you’re comfortable with and who can help unpack your goals and put a plan in place to give you the best chance of achieving them.

By André Wentzel, Solutions Manager at Sanlam Personal Finance