The next generation will be taking over the financial reigns from us Baby Boomers, but have we equipped them to assume that responsibility? Every generation seems to approach their finances in a different way.
Baby Boomers (born 1946-1964), are just emerging from the recent recession. They suffered losses of jobs and in net worth and are commonly referred to as the “sandwich generation” because they have been responsible for taking care of kids while simultaneously caring for their elderly parents. In our time, college was comparatively less expensive than it is today, and that lingering student debt we carried only affects about 3 percent of households of those 65 and older, according to the United States Government Accountability Office. Interestingly, Boomers are now beginning to help their offspring (Gen Z’ers included) with their burgeoning student loan debt. But, do not feel that sorry for the Baby Boomers. They have accumulated $40 trillion in wealth and are beginning to pass it along to the next generations.
Gen X (born 1965-1980) may actually be struggling the most with their finances. They bought homes with high mortgages, have student loan debt and kids at home to contend with; not to mention elderly parents as well. According to a Harland Clarke whitepaper entitled, “Generational Borrowing Habits: The Skinny on Boomers, Gen X, Millennials, and iGen,” Gen X’ers are “considered the first American generation to do less well than their parents, Gen Xers not only took money out for college and their homes, they also borrowed to pay for the lifestyle their parents had afforded them as children. Because of these factors, members of Gen X carry the highest debt load – an average of $142,007 per person.”
Millennials are almost 80 million strong and have the most buying power of any current generation. Their largest purchase is a college education. We also know that Millennials grew up in a time where our economy was doing well, until it all “hit-the-fan” in 2008, when our latest “Great Recession” came crashing in. Millennials graduated from college with huge debt, saw their parents laid off, and in many cases lost their homes, were underemployed, delayed buying a home or car, and decided to push off starting a family. They are now just pulling out from under this economic cloud. According to the US Chamber Foundation report, ”Millennials have witnessed instability in the workplace, business scandals, and their parents’ jobs being downsized after loyal years of service. These market conditions and unemployment rates, almost twice that of all workers, are leading many to become entrepreneurs.”
Now enter Gen Z, referred to as the “iGen.” This generation is comprised of bright and well educated young adults, who want to be entrepreneurs and are attached to a mobile device at all times. But, what is impressive is that they seem to have the money-smarts that were missing in previous generations.
TD Ameritrade’s 2nd Annual Generation Z survey uncovered an interesting response to the question: “If you were given $500 today, what would you do with it?” GetRichSlowly.org reported a surprising “… 70 percent of those in Generation Z say they’d save at least part of it, and among them, 34 percent would save it for college.” The study went on to say that, “Almost half (46 percent) of those in Gen Z say their biggest concern is that they’ll be drowning in student debt after graduation. And they have reason for concern. The cost of a college degree has increased 1120 percent in the last 35 years.” But, hopefully, these soaring costs have not deterred this generation from wanting to attend college. “… 72 percent still plan to attend college or are currently enrolled…”
We Are Counting On You, Gen Z
I’m optimistic after participating as a panel member when Lincoln Financial released its 2016 Measuring Optimism, Outlook and Direction (M.O.O.D.) of America survey. Gen Z has cracked the code on many financial attitudes that previous generations have not. “More than half of Gen Zers say they’re not too young to start preparing for their financial futures.” In fact, the survey indicates that …”64% of [Gen Z’ers] have already begun researching on their own or talking to others about financial planning.” How savvy are these kids? “Age 13 is the average age they began researching or talking to others about financial planning.” Furthermore, more than half already have a savings account, so they’re in the habit of saving.
But just saving alone won’t be enough. There is an enormous opportunity to teach these kids about the benefits of compound interest: if a 20-year-old Gen Z’er invested just over $50 a week, at an average growth rate of five percent, for 50 years, that 20-year-old will have accumulated more than a half million dollars, compared to just over $100,000 if left in a savings account, at today’s rates, for the same timeframe.
“Our survey showed Generation Z has an overall optimistic outlook on life, and 71 percent prioritize saving for their futures,” Jamie Ohl, president, Retirement Plan Services, Lincoln Financial Group, said. “But more than that – they’re actually doing something about it. Sixty percent of Gen Z already has a savings account, so that optimism is reflected in their actions.”
Don’t Worry About Adjusting To The Empty Nest
Will this new found power of saving mean that they will graduate for college and be out on their own? Nope. It means that you, as parents, will not have to suffer from the “Empty-Nest Syndrome.”
According to TD Ameritrade’s study, as reported by GetRichSlowly.org, “…63 percent say that they feel they’d be welcome to move back home if they couldn’t afford their own place. And most don’t view it as such a bad thing. College grands currently living at home or planning to so cite two major benefits:
- 81 percent say it allows them to save money.
- 48 percent say it allows them to be more selective about career opportunities.”
Indeed, Ben Franklin would be proud that Gen Z got the text about the importance of saving. He would be even more proud if they understood the tweet about #Investing.
