The Best Ways for Millennials to Save
Given recent statistics on their financial situation, it seems stories about millennials and their money problems have been greatly exaggerated.
It's not clear how it started, but stories about millennials and their money problems have been greatly exaggerated . At least, that's according to some of the latest research on the issue from Bankrate. Their study is the latest to show that young adults in America are only getting better at saving as time goes on. However, there are still some common pitfalls that could impact long-term financial security for many.
"Millennials have less cumulative debt compared to the same age group in 2003."
For one thing, the stereotype of the debt-laden college graduate, while common, isn't all that meets the eye. As The Washington Post reported recently, millennials actually have less cumulative debt than the same age group reported in 2003. While the figures are closely matched, total debt held by 20-somethings in 2003 was slightly higher than what the age group held in 2015.
In addition, young borrowers today also have fewer different types of debt. Thirteen years ago, the average borrower in his or her 20s held debt from credit cards, home loans, car payments and student loans. Today, student loans comprise the majority of debt held by young adults, while other debt types are relatively scarce. Still, the average student loan debt is more than twice what could be found in 2003, with the typical 20-something holding $5,000 in college debt back then. Now, it's more than $11,000 on average.
If the debt picture is a mixed bag, the savings game is much brighter for millennials. According to Bankrate's survey, 62 percent of this age group is saving at least 5 percent of their regular paycheck for retirement, an emergency fund or another long-term goal. For comparison, last year only 42 percent of young adults were saving that much. And in the next-oldest age group, those between the age of 30 and 49, only half are saving as much.
Broken down further, the numbers are even more impressive. In fact, a third of the millennials surveyed by Bankrate were saving between 6 and 10 percent of their paycheck. A total of 14 percent even reported they were saving upwards of 15 percent of their income. That's certainly impressive given the large amount of debt many in this generation have been saddled with.
Things get better for millennials
So how are they pulling it off? According to the Washington Post, much of the increase in savings can be explained by higher wages and better employment figures. In February 2016, the unemployment rate for Americans age 20 to 24 was 8.6 percent, compared to almost 10 percent a year before. And for workers of any age, wages were about 4 percent higher across the board compared to 2015.
Getting a raise always helps anyone's savings situation, but for those who haven't been so lucky lately, CNBC suggested a few basic tips that young workers can use to stockpile more cash. Primarily, it's about adopting the "pay yourself first" mentality. Savings should be a guarantee for every paycheck, rather than an afterthought. Many experts agree that setting up a direct deposit that automatically diverts a percentage of each paycheck into savings is a great way to make the task automatic.
Millennials should also take advantage of every savings opportunity they have. That means contributing to their employer's 401(k) plans up to the highest match amount. If there's still any left over after that, CNBC suggested a Roth IRA. Since young workers can reasonably expect to earn higher wages in the future, the tax advantages of a Roth IRA are the best route to take. Since taxes are paid on savings upfront instead of later on, investors will pay the lowest rate and get the most bang for their retirement buck.
Overall, an effective savings plan is just like an effective diet: the best one is the one that you can stick to. Keep savings simple and you'll find escaping debt is easier than imagined.
For those who want to make the most of their savings and discuss long-term financial goals, contact the professionals at Vectra Bank.