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One Reader’s Reasoning on Why Younger People Don’t Save
By JLP | September 26, 2008
I want to highlight this comment I received regarding why young people aren’t saving money (edited slightly):
I’m 27 and I can tell you really simply why we are not investing.
1. Since the day we graduated we’ve seen nothing but bad news. Huge tech crash, current crash. We’re not even back to where we were almost 10 years ago.
2. We have huge student loans to pay back.
3. Finally got out of college in 2004, saved as much as possible and am currently underwater…may as well have spent that extra money.
4. There are no solid investment vehicles that are even matching inflation right now.
5. We want to start families soon and need short-term funds, not long-term retirement funds.
6. We don’t really have much trust in our country. Frankly, I don’t think the US is really #1 anymore and our economy will only decline in the long run unless we are willing to tackle education’s inadequacies, stop giving money for oil to countries that hate us, and truly address the issue of consumerism.
We don’t see the market as a stable investment for the near future and would rather sit on cash and then get in either in the US once we balance out or elsewhere if my dollars are still worth anything.
I know firsthand how hard it is to get on your feet after you graduate from college and are just starting out in life. It is tough to think about retirement planning when you’re barely making ends meet. That said, most of those reasons are really nothing but excuses. Let’s look at each one:
1. Since the day we graduated we’ve seen nothing but bad news. Huge tech crash, current crash. We’re not even back to where we were almost 10 years ago.
Tell me one generation that didn’t experience bad news. Bad news is part of life. We go through tough times all the time. It’s nothing new. Use those tough times as buying opportunities since asset prices are typically lower during the bad times than they are during the good times.
2. We have huge student loans to pay back.
Figure out how much you owe and map out a plan to pay them back.
3. Finally got out of college in 2004, saved as much as possible and am currently underwater…may as well have spent that extra money.
Please don’t think this way. Instead, think about it this way: spending that extra money would have only put you further into the hole. It took my wife and I several years to get above water.
4. There are no solid investment vehicles that are even matching inflation right now.
Investments fall in and out of favor. Stocks are suffering right now. However, over the long run, stocks are superior inflation-beaters. Don’t base your long-term projections on short-term performance.
5. We want to start families soon and need short-term funds, not long-term retirement funds.
With proper planning you can have both. It’s extremely important to take advantage of the one thing you have on your side: TIME! Start out by putting a 3-6% of your salary into your 401(k). Once you get used to it, you won’t miss the money.
Saving for retirement when you’re trying to start a family will require some sacrifice. But, it is well worth it. The absolute BEST thing my wife and I did was to start putting money into her 401(k).
6. We don’t really have much trust in our country.
What? The greatest country in the world? Sure, we have problems but this is still a great place to live. Even if you don’t trust our country, what else are you going to do? Go live somewhere else?
Bottom line: it takes patience and sacrifice to get ahead.
I appreciate this reader’s honesty even if I don’t necessarily agree with them.
Topics: Basics, Financial Planning |
September 26th, 2008 at 3:47 pm
401(k) match is keeping up with inflation. I don’t care what the news is doing today… I’ll take it.
September 26th, 2008 at 3:57 pm
Very good advice. This is very similar to what I have been telling my adult children…showing them spreadsheets to point out how critical it is to “start early”.
September 26th, 2008 at 4:14 pm
There are winning attitudes and losing attitudes in life. This reader demonstrates a loser’s attitude. The reader’s whining point 3 is particularly disturbing. BTW - the reader can forget the “we” part, as if everyone in his/her generation thinks alike. There are plenty of young adults with positive attitudes. They will be succesful.
September 26th, 2008 at 5:04 pm
The funny thing is that you NEED him to invest so YOUR portfolio keeps growing because without him, YOUR investment growth would be limited.
He really doesn’t need us as he’s got enough on his plate to take care of and what matters the most is what the next generation is doing.
This is similar to boomers sticking gen x with the bill. The commenter isn’t as stupid as you make him out to be.
September 26th, 2008 at 6:07 pm
I have a lot of friends my age (23) that are completely convinced that the recent economic problems will mean the end of the stock market and there’s no way anything will ever improve. I think these people will be more reasonable the next time the economy is struggling but they just need to make it through this recession (or whatever you want to call it) to gain some perspective.
All my friends that feel that way will start investing as soon as they’re convinced the market will recover. Unfortunately, waiting for the market to regain its value seems like just about the dumbest way to invest.
I’m trying to buy as much as I can now because in the grand scheme of things, the best time for investments to under perform is when you haven’t built up much of a nest egg yet (you’re losing months of savings instead of decades) and when the market picks up again, a significant chunk of my investments will have been purchased at an incredibly low price.
September 26th, 2008 at 7:44 pm
To be fair, at your age and in those circumstances, it’s all about cash flow, not capital… because you don’t have any. And wait until your first car loan and mortgage get added in as well.
On the plus side… your income will probably never be as low in the future, and over time you will start building capital… and then you’ll wish you took advantage of the 100% instant return of matched 401ks because you WILL be focused on retirement and wishing you could do better than a 3% average return.
If you can…. do the matching of the 401k and then put the rest where you think best… debt, short term savings, what have you. You’ll thank yourself for it 10 years from now.
September 26th, 2008 at 10:00 pm
#1 is a flat out lie! Don’t believe it. The S&P 500 is up 16.13% from Oct 2, 1998 to now! And I don’t think that even includes dividends. Now that is not a very good rate of return for 10 years, but don’t you dare say that “We’re not even back to where we were almost 10 years ago.”
http://finance.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chdet=1222484238176&chddm=491878&q=INDEXSP:.INX&ntsp=0
September 27th, 2008 at 12:59 pm
Item 6 is a cop-out. Whatever the relative international position of the US happens to be when you retire is irrelevant. Many people in non-superpowers manage to save money and retire, so one’s impression of national standing should be irrelevant.
If you think that somehow the world will cease to exist for this or that reason before you reach retirement age, you may want to study the history of “Bigthink Disaster” predictions through the 19th and 20th centuries.
And if the Big Disaster doesn’t happen, you’ll probably end up living a very long life. If you don’t want to work that long, you’ll want to save.
September 27th, 2008 at 2:03 pm
I would say that if you don’t have trust in the United States, invest in other countries. There’s always something to invest in.
September 27th, 2008 at 5:20 pm
@Jeremy Bettis:
There’s a gaping hole in your logic: our economy isn’t static - the inflation grows along with the market. I think the annualized inflation growth over the past 10 years was 2.8%, which means it would cost $1.30 now to buy $1 worth of goods in 1998.
30%>16%. Case closed.
September 28th, 2008 at 4:22 pm
it’s easy to come up with every reason not to save. i thought that way until i turned 30 and saw that no one else was going to take care of me, except me.
September 28th, 2008 at 6:08 pm
Hi JLP,
Great comments from someone with some common sense.
If more people started questioning rather than simply accepting the guru’s spin then we would have a better society.
I have always wondered why we focus on building a nest egg when what we really want is cash flow. If we focused on generating cash flow then we would be far better off. That is what we get when we go to work. At the end of the week we get cash flow not a promise of a nest egg in the future which can’t be spent.
September 29th, 2008 at 8:39 am
I am also 27 right now. My thinking has always been that regardless of how bad the inflation is in the future, wouldn’t you still be better off to have something saved rather than nothing?
September 29th, 2008 at 8:59 am
I’m just a tad younger than this guy and a lot of my friends say the same things. One of the largest problems is finding a career. My friends who went into computer science and engineering all found careers (that they complain about but shouldn’t) but my other friends have struggled on going into construction, continueing to wait tables, moving back in with their parents etc. The ones who didn’t fall into either category had connections through their parents.
Sometimes yes, they’re picky about their jobs. But there doesn’t seem to be the same oppurtunity out their for non technical people.
September 29th, 2008 at 2:41 pm
Thanks for completely dismissing one reader’s very valid comments with mindless patriotism and trite adages. Obviously your experiences X years ago are completely analogous to their situation.
Fact: it is possible to be in a financial situation where you can’t save enough money to pay back loans, start a family, buy a house, AND save for retirement, as much as some PF bloggers like to stick their fingers in their ears and say “LA LA LA I’m not listening.”
The person who wrote that comment is a realist, not a pessimist. I don’t blame them one bit for thinking as they do.
I wish you the best and I hope that you were able to gain more readers from this post than the one you just lost.
September 29th, 2008 at 3:35 pm
I agree, my belief is that younger people not saving more is just a subset of all those that are not saving more (most of those in the USA). You can come up with reasons that are specific to those that are young. Young don’t for various reason, middle aged don’t for other and similar reasons…
Look at China (with much much less prosperous people) saving tons more. And the young are also saving.
September 30th, 2008 at 8:10 am
After 2 months living together in our first apartment, my boyfriend and I (26yo and 24yo) just opened an ING account and sent that way two “payments” of 500€ (720$). The first couple of months have meant lots of spending, but now that we’re practically settled, we want to start as soon as we can so we can someday buy a house. We’ve decided to jumpstart our savings by doing a no-spend end of the year. You can check on our progress here:http://www.wetakeiteasy.com
September 30th, 2008 at 5:31 pm
This was a great post! There is so much turbulence in the market today, and people need peace of mind more than ever. I wanted to offer your readers a link to another blogger who is doing great work. He writes about our ‘childhood money messages’ and how the best approach to stability in today’s market is to resist letting these emotions control our buying/selling habits. It is really fascinating work, and something you should all check out. His name is Spencer Sherman, and you can view his blog at http://www.curemoneymadness.com/blog.
October 8th, 2008 at 10:37 am
I’m not unsympathetic with Paul and Lisa and the original poster. I also hit the job market in a time of high inflation and a rocky market (Late 1970s - gas was rationed, inflation approaching 12-14%, etc, etc.)
I think the way to survive these kinds of stages is to focus on the basics. Get your budget in place - have a positive cash flow, work on your career, save what you can. Yes, it’s scary, and I think part of your reaction is totally fear based - I know mine was at your age. You think it won’t ever get better, and honestly, nobody can tell you that.
The GOOD thing about coming of age in this kind of environment is when it cycles around again (and it will), you’ll know you can survive it. I was just discussing this the other day with my mom (who is a child of the 1930s one); we both know we can make it through this.