Millennials have become a punchline and punching bag for the rest of society. These twenty and thirty-somethings are routinely pilloried as entitled, whiny, soft, immature and self-absorbed – all of which guarantees they will fail as adults taking 250 years of American greatness down with them.
One might think this constant barrage of Lamest Generation criticism would corrode the self-esteem of members of this demographic cohort. Apparently not. More than half of Millennials expect to become millionaires, according to a recent survey conducted by TD Ameritrade. Almost a quarter said they will hit that milestone by the time they are 40 years old.
Oh, and they expect to retire in their mid-50’s.
Gotta love that optimism. But it remains to be seen whether Millennials can walk that talk. On the upside, they are graduating from college in record numbers, thus boosting their earnings potential. Unfortunately, they are also saddled with heavy student loan debt. Twenty percent of the TD Ameritrade respondents said they will never be able to pay off those obligations. That might be why 24% don’t expect ever to own a home, and 17% still have some degree of financial dependence on their parents.
Perhaps because of that college debt, many Millennials haven’t begun saving for retirement. Indeed, the survey participants indicated they don’t plan to start that process until they are 36 years old – more than ten years after they likely began their careers. This is a deeply flawed plan, especially if you want to retire in your 50’s. Failure to save in your 20’s deprives you of the power of compounding.
As an example, let’s say a Millennial began investing $5,000 a year at age 22 and continued to save that amount of money away until age 67, with a 6 percent return. They would end up with a nest egg twice as big as someone who did the same thing starting at age 32. It could mean the difference between going into retirement with half a million dollars versus retiring with $1 million. That’s the power of compound returns over the long haul.
Millennials’ failure to grasp the power of compounding may be the result of their relative ignorance of financial matters. Only 20% of the TD Ameritrade respondents considered themselves very knowledgeable about investing.
There are currently about 15 million millionaires in the US. If 53% of the 83 million Millennials do indeed join those ranks, it would add approximately 44 million millionaires to the roster. That’s impressive, and I’d love to see it happen. But amassing that level of wealth requires time, commitment and knowledge. I think Millennials as a group may need to work on those aspects of their financial life. As the wise man said, “Hope isn’t a strategy.”