Millennials are charting unexplored territory as the first generation to plan for financial freedom instead of retirement, according to the latest Merrill Edge Report.
Sixty-three per cent of millennials are looking to achieve the amount of savings or income necessary to live their desired lifestyle, which drastically differs from most (55 per cent) Gen Xers and baby boomers who are saving to leave the workforce.
The survey of more than 1,000 mass affluent Americans, conducted between 21 March and 5 April, outlines a change in how younger generations define life milestones and what it means to be an adult.
When asked about their top priorities in life, millennials were significantly more likely than their older counterparts to focus on personal milestones of working at their dream job (42 per cent, compared to 23 per cent) and traveling the world (37 per cent, compared to 21 per cent).
Today’s 18- to 34-year-olds are also far less likely to prioritise traditional life milestones, including being married (43 per cent, compared to 51 per cent) and being a parent (36 per cent, compared to 59 per cent).
“This spring’s report shows us even more differences between how millennials and their parents view and save for the future,” says Aron Levine, head of Merrill Edge. “Young adults tell us they are willing to do whatever it takes to achieve freedom and flexibility, even if it means working for the rest of their lives. To ensure success, it’s increasingly important these younger generations take a hands-on, goals-based approach to their long-term finances and prioritise saving in the short term.”
Millennials’ “fear of missing out” (FOMO) philosophy is also evident in their spending habits, as the majority say they’re more likely to spend money on traveling (81 per cent), dining out (65 per cent) and exercising (55 per cent) than saving for their financial future.
Although 45 per cent of millennials consult their parents “always” or “often” for advice on financial matters, perhaps parents should be consulting their children. The report found every generation views their elders as superior savers – 54 per cent of respondents say the Greatest Generation does a “very good” job, followed by baby boomers at 45 per cent, Gen Xers at 19 per cent and millennials at only 8 per cent, including only 15 per cent of millennials themselves.
However, when asked how much of their income they save annually, millennials say they save 36 per cent more than their generational counterparts, with over one-third of millennials putting more than 20 per cent of their salary toward savings goals.
Overall, 42 per cent of respondents are saving less than 10 per cent of their salary, and 7 per cent don’t save at all. This broader savings gap may be the reason why respondents don’t feel prepared for life’s “what-if” scenarios.
Seventy-one per cent are not very confident they could achieve their financial goals if they were to get divorced, with just 5 per cent planning for the possibility.
Sixty-four per cent say they are not very confident they could be financially successful if they had children, with just 23 per cent saving for a family.
Forty-eight per cent are not very confident they could achieve their goals if they outlived their significant other.
Americans agree they could do a better job to prepare for life’s surprises. Fifty-nine per cent believe individuals in the US should be required to save for their own retirement, and 48 per cent feel financial education should be a requirement.
Innovations in technology have a significant influence on the future of saving, as many Americans increasingly embrace recent industry advancements to make investment decisions and receive guidance.
Two in five Americans say they make and manage their investments through an online or mobile portal. One in eight Americans are currently using a robo-adviser or would consider doing so in the next year, and this number jumps to 22 per cent among millennials. Overall, respondents cite this ability to invest via mobile makes them feel knowledgeable (51 per cent), empowered (31 per cent) and savvy (14 per cent).
When asked about predictions for the next decade of investing, Americans believe emerging technologies will allow more people to invest (41 per cent), most investments will be automated (34 per cent), and the 401(k) account will no longer be the “gold standard” (29 per cent).
“We’re at a pivotal moment in time, when our physical and digital worlds are intersecting more than they ever have before,” says Levine. “This growing shift is driving our high-tech and high-touch approach to innovation, and the beauty is that consumers are recognising that planning for their later years is not a one-size-fits-all process. With new technologies, customers have the flexibility to be hands-on with their investment decisions, while still consulting an adviser to help navigate complexities as their lives change.”