Amid Challenges, Millennials Strive to Save

Millennials are taking shape as a generation that cares about saving for retirement but is in desperate need of advice and education, a study finds.

As Millennial workers are just getting started on a lifetime of saving, the industry has hopes that this generation—the first to be able to leverage a lifetime of 401(k) contributions—will be able to prepare adequately for retirement.

Auto-features are a plan sponsor’s best resource for helping Millennials get the most out of the plan, says Judith Ward, a senior financial planner and vice president of T. Rowe Price investment services. “Millennials are using them, they need them, and they want more,” she told PLANADVISER during a roundtable discussion on the firm’s latest research.

Ward said 80% of Millennials believe the default deferral rate should be raised under auto-enrollment, and many wish they had been enrolled at higher percentages. The findings come from the firm’s new report that examines retirement savings behaviors in different age groups, “Millennials, Gen X, and Baby Boomer Workers and Retirees: Retirement Saving and Spending Study.” 

Millennials are novice investors, pointed out Jerome Clark, a chartered financial analyst (CFA) and head of the T. Rowe Price target retirement funds, among other roles. “They want financial guidance, because they are aware that they’re lacking in financial knowledge,” he said. “They’re not getting financial education in school, in college or at home.” When they get to the workplace as new employees and new plan participants, they sometimes find themselves at sea.

Millennials have a gap in knowledge about finance in general. From that perspective, “it probably doesn’t matter what investments they are defaulted into,” Ward says. “Plan sponsors need to educate them about target-date funds and what’s important about participating in the plan.”

Next: Millennials are open to advice—on their terms.

Advice for Digital Natives

This generation seems open to the idea of paying for professional financial advice. More than a third of Millennials (38%) said they have paid for financial advice in the last five years. “Since this generation was raised by Baby Boomers, they get a lot of their values from them,” Clark noted.

Other things to keep in mind about this generation, Ward observed, is their tech savvy. “They’re called digital natives for a reason,” she said, but they still like talking to someone one-on-one. This means advisers will need to think about the way they do business with Millennials. Ward mentioned a financial planner, a Millennial herself, who reaches out to Millennial investors online, using Skype and FaceTime, which Ward called a good way to use technology in client services.

Their deep engagement with social media means that advisers might want to create more personalized experiences to interact. Ward says advisers could consider creating a profile that Millennials can view online, and their love of gaming, peer review and peer recommendations all represent opportunities for creative approaches in delivering information or connecting. “They mistrust traditional advertising,” Ward points out. “They want authenticity.”

Some additional findings about Millennial saving and spending habits from the study are:

  • 23% contribute 5% to 6% of their personal income to their 401(k) plans;
  • 24% know that the recommended contribution is 10% to 14%;
  • 40% are contributing a higher percentage of their income than they were a year previous;
  • 61% say getting a raise is the top reason they’d increase their contribution; and
  • 45% of those contributing less than the maximum say they can’t afford to contribute any more.

T. Rowe Price surveyed 3,026 working adults, age 18 and older, currently contributing to a 401(k) plan or eligible to contribute and having a balance of at least $1,000 between March 4 and March 25. The report also includes responses from 255 Millennials (ages 18 to 33) working and eligible for a 401(k) plan at their current employer but not contributing and without a 401(k) balance.