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Getting Generation Y to Save for Retirement

By JLP | September 27, 2006

There was a very interesting article (Pitching 401(k)s to Generation Y is a Tough Sell) in today’s Wall Street Journal about how 401(k) firms are having a hard time getting Generation Y to save for retirement. In my opinion, here’s why retirement planning is such a tough sell to Generation Y:

They Have Too Much Debt. Too many young people are worried about getting out of debt (or at least that’s what they say). Student loans and credit card debt are the culprits.

They Earn a Low Income. Young people are at the beginning of their careers, which means their incomes are lower.

They Either Have No Budget or Low Budgeting Skills. Without a budget, it is hard to prioritize spending. If everything that comes in, goes right back out, saving for retirement will be impossible.

They Are Worried About Today. When you are 25, it is VERY HARD to think about retirement, which is 30+ years away! With retirement so far away, a lot of young people believe that they can put off saving for it until they are older. As this post suggests (a MUST READ in my opinion), putting off saving for retirement just ONE year can have a tremendous negative impact on a retirement plan.

They Don’t Understand the Power of Compounding on Investment Returns. Although a young person may not have a lot of disposable income, one thing they do have is TIME! Don’t waste it. Not convinced? Take a look at How Much You Can Save in a Lifetime?

Topics: 401(k), Basics, Kids and Money, Retirement Planning | 22 Comments »


22 Responses to “Getting Generation Y to Save for Retirement”

  1. Stephanie Says:
    September 27th, 2006 at 10:58 am

    Every chance I get, I tell young people to get started. I started as soon as I could (when I was 21) and I’m SO happy I did. No one really told me I should, but I used to worry about money even then and just knew that I should do it.

  2. Jeremie Beaudry Says:
    September 27th, 2006 at 11:40 am

    I believe that most of the problems stem from the lack of education either at the school or parenting level. Generation Y is being taught by Generation “no savers” (according to recent stats). I am currently trying to get a personal finance class introduced in my region of Georgia so we can break this cycle, but it hard because the government wants to see test scores increase instead of financial awareness. I wonder which one actually more important…. Someone that gets good grades on test with a ton of debt or an average student that knows everything about finances…
    I do think that you are completely right. A lot of my friends that just graduated from UGA have over 50k in student loan debt, and their entry-level job that offers than a 401(k) doesn’t seem worth it. Most of Generation Y needs to think a lot more long-term.

  3. Spending Less Says:
    September 27th, 2006 at 11:44 am

    Might be the best time to buy a house

    The other day, I'd seen a post by JLP about the estimated tax brackets for 2007 was released and

  4. prlinkbiz Says:
    September 27th, 2006 at 12:12 pm

    Saving for retirement as a young 20s person seems a little overkill to me. Thats the time of life when you should focus on growth through investing. Do you know what the returns on a couple thousand a year can be if you grow it instead of save it? (My $4K is giving me $2500 a month for a year and thats a small deal) Learn money managment skills- definitely- learn to put money aside- defintely.

  5. BD Says:
    September 27th, 2006 at 1:36 pm

    prlinkbiz,

    401(k)s for 20-seomthings are all about growth! “Saving” for retirement is a bit of a misnomer for someone in their 20s; we’re really talking about investing for retirement.

  6. DEBTective Says:
    September 27th, 2006 at 1:45 pm

    You said it, baby! Gen-Y needs to get some sense and start saving. The longer they wait, the more dough it costs them. Young people need to get on a budget, deep-six their debt and connect with the cash. Thanks for spreading the word!

  7. JLP Says:
    September 27th, 2006 at 2:01 pm

    prlinkbiz,

    I don’t think I’m understanding what you are saying? By “saving” I mean putting money back in investments, using a 401(k) or IRA.

  8. Kira Says:
    September 27th, 2006 at 2:02 pm

    There’s also this concept that retirement saving is something that you do when you’re older – when I was home recently, I was giving a friend some advice about setting up a Roth IRA for money he didn’t want to touch (since he can take it out again later if he needs it) and my dad said that he didn’t understand why I was so worked up about retirement right now, I had plenty of time, etc.. But the reality is that if I take the luxury of that time, I will need to save a lot more money! And right now, I have the lowest expenses I’ll ever have – no kids, no house, no husband, parents are still working, and I don’t even have a dog. Lots of other people my age consider retirement saving something you do when you’re close to retirement, but really that’s a last ditch effort – in order to be successful, you have to start AS SOON AS POSSIBLE.

  9. Charles Says:
    September 27th, 2006 at 2:33 pm

    This is a problem for people like me (since when am I generation Y?) who have decided to go to graduate school. I haven’t heard of a single grad school that offers retirement packages. Of course, the stipend given usually is calculated to be enough for room and board in the given area (no spending/saving money left over) so IRA’s are difficult to contribute to, as well.

  10. Matt Says:
    September 27th, 2006 at 2:39 pm

    Great points, the debt is a very valid one because everyone is trying to give Generation Y people credit, heck when I got my first card I was a student without a job in my first year of university. Not only did I have access to what at the time seemed like free money, I had no income and to top everything off I had absolutely no budgeting skills. I have learnt the hard way; I’m just now starting to plan for retirement and this is 10 years later and I’m still loaded up on debt.

  11. Sarah Says:
    September 27th, 2006 at 9:59 pm

    I agree that education in personal finance is the key to getting my generation to save. I took a personal finance class for non-business majors my last year of college. It really changed how I look at money and showed me the power of compounding interest. My teacher said something the first day of class and kept repeating it throughout, she said if you take only one thing from this class, it should be, open an Roth IRA now! She even went on to tell us what we should invest in, a S&P 500 index fund for automatic diversification.

    There’s more to this story on my blog. My comment was getting a little long so I decided to move it over there. Anyway, the moral of the story is education makes a difference. Gen Y isn’t irresponsible or lazy, most of us have just been taught more about spending than saving.

  12. ciwood Says:
    September 28th, 2006 at 7:53 am

    I Teach financial planning at a university and selling retirement to an 18 year old is impossible. I have instead started a “Dream” campaign. If you had some money, what would you like to do? Then I counsel them on accumulating the finances to achieve their “Dream”! Hopefully, their dream will grow and adapt in the future to include income without a job (retirement)!!!! With this approach, they seem more willing to put money away for the future.

  13. Katie Says:
    September 28th, 2006 at 10:23 am

    I am currently a senior in college, and I am very concerned about starting a 401k plan once I start working a full-time job. I think the problem with the 21-25 age bracket is that we receive no real education on 401k’s except what we get from our parents. It would be beneficial to get financial companies to speak to companies with a lot of new hires.

  14. prlinkbiz Says:
    September 28th, 2006 at 10:30 am

    I’m saying that while saving is important, you have to if you want money to invest with or save, I will always opt for and encourage others to invest in income producing assets that create cash flow. My goal is $X amount of income from my investments to provide for my income, not savings. Then I have money coming in regularly, as well as the value of the assets to protect me and provide for me through retirement, not just savings. A 401 K is great, especially if you can tap into some of that money today and invest in in income producing real estate. I just can’t imagine tying up money for so many years to get such a small return, when I can take that money today and get a much great return. This method is how several of my friends have been able to retire before 35, and most of them took 2-7 years to do it- and they are very well off, while continuing to work. Gen X, and especially Gen X are not going to be as keen on saving for retirement- the world is a different place now. Forgive the rant- I should have done a post! LOL

  15. Foobarista Says:
    September 28th, 2006 at 11:28 am

    You can invest in income producing assets while still funding 401Ks or Roth IRAs – and if you’re a bit clever, you can do it legally while using them. There are custodians that let you buy real estate or other self-directed investments through your IRA and even a self-employed 401K if that’s your cup of tea.

  16. samerwriter Says:
    September 29th, 2006 at 11:40 am

    Having “been there and done that” with regard to savings and debt while in college, I used all these excuses.

    Ultimately, I was just more interested in spending money going out to eat and buying CDs than I was in saving.

  17. samerwriter Says:
    September 29th, 2006 at 11:42 am

    prlinkbiz,

    Let me guess; all these guys retiring at 35 after 2 – 7 years of working just had to send put their name and address on the bottom of a list, send $1 to the other names on the list, then forward the list to 10 of their friends?

  18. Bill Says:
    October 3rd, 2006 at 10:27 am

    I think Gen Y needs mentors that can lead them in the ways of saving.

  19. prlinkbiz Says:
    November 1st, 2006 at 12:27 pm

    Same writer- you made a funny! I am financially free at 29 from a business investment. One friend has done well in SF Real Estate, and funneled the money into business(30). One friend figured out internet stragey and was out in two years(33). Another specializes in multi family and rode the markets over 7 years wisely investing to financial freedom(45). Another invested in real estate, started a real estate based business and conitues to invest in RE(45). One built and bootstrapped built and sold an internet company and is free(35). I can keep going. None of these are get rich quick- they all took time, effort, education, and a lot of character. They all required more financial education and know how than most people have. They all required hard work and the ability to manage risk while living on the edge. It can be done- there is a price to pay for sure though and most people aren’t willing to work that hard/smart. I would rather hit it hard now and have the rest fo my life to live as I wish. Those who think it can’t be done need to get out the way of those of us who are doing it…or join in the fun.

  20. John Says:
    June 9th, 2008 at 9:25 pm

    Looks like I a bumping this article two years later. It is VERY difficult to put money away into a 401k/IRA these days, especially for Gen-Y’ers. The price of day-to-day living is ASTRONOMICAL. If you want to build a career (and income, read that as “more disposable income for retirement savings”), you have to live near a major city. As we all know, living near a major city is VERY expensive. On an entry level salary its not easy, even with a bare bones budget and living 5 up in a 3 room apartment, you still have very little to nothing to save. The market doesn’t make it easier either. Oil and food is up, and the inflation that causes that tanks the market. So either you spend more to live, or your investments tank. As far as being an “active” trader, someone building a career just simply does not have the time. This country is in for a HUGE shock when Gen-Y and on starts to hit retirement age and they basically need government assistance. Taxes and homelessness are going to be sick…

  21. Comment on Getting Generation Y to Save for Retirement by John Says:
    June 10th, 2008 at 12:02 am

    […] Comment on Getting Generation Y to Save for Retirement by John On an entry level salary its not easy, even with a bare bones budget and living 5 up in a 3 room apartment, you still have very little to nothing to save. The market doesn’t make it easier either. Oil and food is up, and the inflation … […]

  22. Comment on Getting Generation Y to Save for Retirement by Comment … Says:
    June 10th, 2008 at 12:46 am

    […] Comment on Getting Generation Y to Save for Retirement by Comment … Comment on Getting Generation Y to Save for Retirement by John On an entry level salary its not easy, even with a bare bones budget and living 5 up in a 3 room apartment, you still have very little to nothing to save. … […]

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