Why millennials need to save sooner
It is interesting to understand how they and Generation Z, the generation that precedes them, approach investing and saving for retirement.
Millennials and Gen Z have different investment priorities to their parents and grandparents.
Millennials and Gen Z have seen the way their parents live, often locked into careers and gruelling work cultures as a means to afford possessions and assets such as property and cars, and to pay for children's education, and eventually funding their own retirement, but in many cases still finding themselves in financial difficulty.
If you speak to a millennial or Gen Z, many of them will tell you that this is not how they would like to live.
During the life-stage in which previous generations were in the accumulation phase, millennials and Gen Z will be accumulating life experiences. Although a lifestyle of flexibility and experiences may trump material possessions, it comes at a cost when you consider the total loss of earnings over the span of a working lifetime.
Work flexibility to pursue life experiences means that the opportunity for long-term career progression, and the resultant pay escalation, might not be as aggressive or as important for millennials and Gen Z.
Also, disposable income will more than likely be used to fund travel, self-improvement and leisure goals. This means they will battle to find the money required to fund retirement if they leave saving for retirement until later years. The solution is to start saving from a younger age.
It is the responsibility of Baby Boomers and Gen X, as parents and grandparents, to assist where they can to educate on this matter. Parents need to teach their children how to budget effectively, by setting goals and objectives. Remind them that long-term savings should be a priority.
Parents also need to allocate time and energy to improve financial literacy in households from a young age. In this regard, parents should:
* Be inclusive with their finances and investment planning.
* Be open to hearing about how their children perceive life and how they want to live it, but be stern about financial implications.
* Teach them about habitual savings techniques, about global asset classes, about currency depreciation, about prioritising, about education costs, the financial commitments that they undertake by having a family, the effects of inflation, the amount of capital required to sustain a 30-year period of providing income.
If we cast our minds to look further into the future, the attitude towards owning physical property will change, as the younger generations will likely want to have the ability to move about freely. Property ownership may still be a desire, but the type and size of property ownership is almost certain to change. Smaller, lock-up-and-go properties will be more attractive.
The reasons for this are twofold. First, it is increasingly difficult to get on to the property ladder because of high entry prices for young professionals. Second, the future will almost certainly allow for remote working conditions with global reach.
The concept of working while travelling and experiencing life before “retirement age” is upon us, and it is only a matter of time before it accelerates with the advent of technology. However, it will come at a cost if we are not diligent about saving first.
Tyrone Coetzee is a wealth manager at Private Client Holdings.