Y Worry? GEN Y optimistic about recovery, looking for guidance, METLIFE survey shows
-- Young Americans Spend Less, Build Reserves, But Will Financial Lessons Stick?
Tips for Generation Y to Create and Maintain a Secure Safety Net--
New York, NY . As the stock market fell, and unemployment soared, members of Generation Y (those born between 1975 and 1991) said their biggest financial regret was not building up a cash cushion (68%), followed by amassing too much credit card debt (43%), according to MetLife’s recent “Lessons Learned” poll. To protect their assets and/or increase financial security in the event of another significant financial crisis, of those GenYers taking action, 70% are building a “rainy day fund,” 61% are reducing spending on non-essential items and 18% are consulting a financial advisor.
However, this attitude may be short-lived. According to the poll, while 74% of Baby Boomers (ages 46-65) say the financial crisis had at least some influence on the way they save/plan for retirement, just 56% of Generation Y agrees. In addition, 54% of GenYers say that their approach to retirement savings/investments hasn’t changed at all as a result of the financial crisis, and of those in Generation Y who have been influenced, just one-in-five (20%) believes that the influence will be permanent, compared to 31% of Boomers.
“While Generation Y has no doubt been impacted by the financial crisis – job loss was particularly high among this demographic – it remains to be seen whether or not the economic downturn spurred permanent behavioral changes,” said Julia Lennox, vice president, Retirement Products, MetLife. “Though 66% of Generation Y still managed to pay down debt, and 44% made regular contributions to their 401(k) plans over the past year, 56% haven’t done any retirement or financial security-related activities. Now is a good time for younger individuals to take advantage of the long investment time horizon ahead of them and start building a financial safety net.”
According to the poll, conducted in late September 2009, while all generations “learned lessons” from the financial crisis, members of Generation Y are far more optimistic about their ability to financially recover, and are more eager to participate in market gains than their older counterparts. Nearly half (47%) of Generation Y believes that participating in market gains is more important than protecting their portfolios against market losses compared with 73% of Baby Boomers, who rank protection against losses ahead of participation in any market gains. Generation Y is also less likely than its older counterparts to be taking a more conservative approach to retirement savings/investments.
Other findings from the poll include:
The Trust Factor: While trust in financial institutions in general has decreased for 64% of Baby Boomers, half (54%) of Generation Y say that their trust in financial institutions remains unchanged over the past 12 months. A majority (53%) of GenYers also say that their faith in traditional retirement safety nets has stayed the same
Seeking Guidance: More than other age groups, Generation Y is increasingly interested in asking for guidance from a financial advisor. One in five (21%) of these young people say they are more likely to tap a financial advisor as a result of the economic downturn, versus 15% of Boomers and 12% of the older Generation X (born between 1964 and 1974).
Personal Recovery Outpaces Economic Recovery: Generation Y is much more optimistic that its own personal financial recovery will materialize more quickly than economic recovery in general. Nearly half (49%) say their personal financial recovery will happen in less than two years, while only 29% believe the economy will recover that quickly. A total of 42% of Generation Y believes the economy will recover in three to four years.
In light of these findings, MetLife has developed some financial tips for Generation Y to help deal with the specific financial issues that this group is currently facing – steps to build a secure financial safety net for the future:
Start Building a Liquid, Accessible Emergency Fund that covers 3 to 6 months of expenses: A money market account is a good option for holding those funds, and take a look at FDIC insured online banks, as they may have better rates than your local bank. GenYers need this fund, not to buy the latest cool electronic device, but because emergencies happen. The fund can help keep GenY from accumulating debt just to pay the unexpected car repair or medical bill.
Research Protection Products: Products such as life and disability insurance are generally less expensive when purchased early in life. Proper budgeting helps to assure that individuals will have the money to buy products that will help protect them and their family later, and help protect their future savings. Disability income insurance is especially important, as one of the primary assets for individuals in their 20s is future earnings.
Purchase Renter’s Insurance: A landlord’s property insurance will not replace the things individuals own if their apartment is damaged. And while 20-somethings may not think they have many valuables to insure, they need to consider the amount of money it would cost to replace clothes, electronics, jewelry and other valuables should a fire occur, natural disaster strike, or a theft take place. Renter’s insurance can cost as little as $100 a year.
Create a Budget that includes debt payments & have a plan to keep total debt in check: Items paid with debt cost so much more when they’re not paid off promptly. Be wary of going overboard on credit cards – especially department store and other retail cards.
Get Bonus Money: If your company offers a 401(k) plan with a company match (matching company contributions), be sure to put enough money in your 401(k) to qualify for the company match – it’s one of the easiest and most cost-effective ways to begin saving for retirement.
Take it With You: When changing jobs, consider rolling over your 401(k) to your new employer’s plan if allowed or to a traditional or a Roth IRA with a reputable firm – do not take a lump sum payment. The taxes, tax penalties, and fees associated with cashing-out early can severely diminish the account value. Converting to a Roth IRA can be advantageous in one’s 20s, when most people are in a lower tax bracket.
Stay Healthy: Getting healthy and staying fit when you’re young through proper nutrition and exercise can mean fewer illnesses and workplace absences -- and less medical costs -- throughout your working life. A major retirement concern among employees is the cost of healthcare in retirement, so take advantage of workplace wellness programs if they’re available.
Get Advice: Seek out a qualified financial advisor who can help you plan for the long term. Face-to-face advice is the key to helping individuals of all ages put the puzzle pieces together and take action.
Harris Interactive® fielded the study on behalf of MetLife from September 23-25, 2009 via its QuickQuerySM online omnibus service, interviewing a nationwide sample of 2,191 U.S. adults aged 18 years and older. For complete survey methodology, including weighting variables, please contact Pat Connor at MetLife, (212) 578-7039, email: firstname.lastname@example.org.
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