I was having lunch at one of my favorite hideaways, a little diner in downtown Los Angeles. I got into a great discussion with two guys in their late 20s and found out one of them was a fellow Indiana University Hoosier. Our shared Alma Mater made for a smooth transition into deeper conversation.
After we got through the usual niceties: “How did you find this place?”, “How long have you lived in LA?”, “What do you do?”–the usual ice-breaking chit-chat, I realized it was a good opportunity to take advantage of their openness and perspectives as young adults growing up in this new economic era.
Over the past few weeks, there have been several articles written (including my own blog entitled “Commencement Speeches: A Time for Inspiration“) which discuss important messages of inspiration and real-world experiences that should be imparted unto young college graduates, as they embark on their careers, hoping to have the right tools and skills to survive and thrive in these uncertain times.
Fortunately for the two young gentlemen, they both managed to land jobs in a very competitive industry, but more importantly (and impressively), jobs that actually related to what they studied in college. During lunch they shared their frustrations regarding reduced salaries compared to the salaries earned by their predecessors 10 years ago, the lack of financing to purchase their starter homes, their mistrust for the stock market and investing in general (other than real estate), and the fear that their generation will be the first generation that will be less well-off than their parents.
However, unlike their parents’ generation (when they were that age), twenty-somethings today are very concerned about their retirement options. “My dad would love to retire at 65, but he’s putting it off because of the swings in the aviation business. I’m concerned,” said JoAnne Farell, a 29-year-old web manager at a design firm in San Francisco who was interviewed by Jennifer Leigh Parker for an article called, “Why Even 20-Somethings Are Worried about Retirement.” Parker went on to cite a study by State Street Global Advisors that showed that Generation X (adults in their late 30s and 40s) are not nearly as prepared for retirement as the Baby Boomer Generation.
Unfortunately, concern is not translating into action. According to a CNBC article by Cindy Perman entitled “Gen Y and Retirement: Are Young People Saving?”, Today’s 20-year-olds (the “Millennials” or “Gen Y”) have witnessed and suffered from the unexpected economic and financial changes that have caused many older adults to delay their plans for retirement because they did not start their savings sooner. Yet despite these concerns and the realization that neither Social Security nor their companies will help them retire peacefully like their grandparents or great-grandparents, more than half (55%) of Gen Y-ers have not yet started saving for retirement, and 64% said they don’t even think about it, according to a retirement survey by Scottrade. Perman adds, Carrie Hibbs, a spokesperson for Scottrade exclaimed, “Of all the non-retired generations, including Baby Boomers and Gen X-ers, Gen Y is the leader in not saving; we call them Generation Procrastination!”
I respectfully disagree. If retirement planning was so easy, then why are so many adults between the ages of 40-60 in such financial turmoil? Many of today’s middle-aged adults lack the knowledge required to impart crucial financial information to young and emerging adults because the majority of their parents and teachers also lacked this same financial knowledge. So it should come as no surprise that like most middle-aged adults today, young and emerging adults who are now graduating college will also find it harder to become financially independent.
The reality is, there has been little effort or action taken by Washington D.C., the Department of Education, or even the State Boards of Education across the country toward effecting change by addressing the way schools should be educating children to properly prepare them for the financial and economic challenges that take place in the real world. Despite all the ongoing research and statistics that have been collected surrounding financial illiteracy among young adults, according to a 2011 survey by the Council for Economic Education, fewer than half of the states make high school students take an economics class, and just 13 states require a personal finance class. Secretary of Education, Arne Duncan, succinctly summed it up by stating, “We have a long way to go as a country.”
In light of the societal shifts created by rapid technological advances and a constant state of change and urgency, is it any wonder that young and emerging adults are questioning and challenging the unsustainable lifestyles they were raised to believe they’d inherit?
It is time we stop assigning blame and start fixing the problem.
By implementing the following five basic steps (that I cover in more detail in my upcoming e-book on retirement), young adults will kick start their retirement plans early, and improve their probable outcomes for financial success.
1. Start saving a percentage of your monthly income–preferably 10%–in a savings account.
2. Create and manage a monthly spending budget to learn to live within your means.
3. Contribute to either a company 401(k) matching program, or standard IRA retirement plan, or both as early as possible and manage these accounts on a quarterly basis.
4. Pay off all credit card balances in a timely manner. If you cannot afford to pay off the total balance on the credit cards, do not incur the expense. LIVE WITHIN YOUR MEANS.
5. Be preventative: eat healthily and exercise regularly so you can avoid any serious costly medical problems that can derail your retirement plans later in life.
If you are a young adult reading this, I encourage you to get going on addressing the above suggestions as soon as you start earning an income–it’s never too early to start. If you think you aren’t earning enough to bother, you are mistaken.
“You Don’t Have to Be Great to Start, But You Have to Start to Be Great” – Zig Ziglar
By becoming financially literate and implementing good financial discipline from an early age, you will establish lifelong habits that will enable you to retire confidently and with peace of mind. If you are no longer a young adult, I’ve got good news for you… These rules still apply–it is never too late to start growing your future success!