Nearly half of Millennials are anxious about debt, according to a TD Ameritrade study. That is not too surprising since many young adults are entering the workforce with a big financial obligation: student loans. Indeed, the amount of outstanding education debt in America has climbed to over $1.5 trillion this year, 146 percent higher compared to a decade earlier. Rising enrollments and a larger share of students borrowing to pay for college help explain the rapid increase in student loans, as well as why Millennials are more likely to have outstanding education debt than older generations.
It is generally accepted that the long run payoff from a college education can make the investment more than worth it, but in the years immediately following graduation a large debt load (averaging almost $40,000 for recent graduates) can not only create anxiety for Millennials but also hinder their ability to adequately prepare for their financial future. The earlier-mentioned TD Ameritrade study, for instance, found that two-thirds of surveyed Gen-Y adults are not setting any money aside for retirement because they simply cannot afford to do so. Further, nearly four in ten (39 percent) Millennial respondents said that they are paying off student loans with a median monthly payment of $200, money that could otherwise be contributed to a tax-advantaged savings vehicle like a 401(k).
Fortunately, many Millennials appear both willing and eager to save because almost three-quarters (73 percent) of surveyed young adults said that if given $100 per week, they would rather put the money toward paying down debt and saving than discretionary spending. Sixty-seven percent of Gen-Y respondents also said that they enjoy setting aside money, and 80 percent equated the act of saving with financial security, something which 68 percent of Millennials described as being “very important.” However, not all young adults are so prudent, and many will need a bit of a “nudge” to help kick start their retirement saving. Automatic enrollment into an employer-sponsored 401(k) plan and the automatic escalation of participants’ contributions have together been proven to be very successful in this arena.
Around eight in ten Millennials surveyed by Transamerica said that they find such automatic retirement plan features appealing. On a broader scale, a poll conducted by American Century Investments found that workers of all ages overwhelmingly support automatic features, with 75 percent of respondents saying that they believe auto-enrollment at a default contribution rate of 6 percent is something their employer should do. Sixty percent of surveyed workers also said that they support a retroactive implementation of auto-enrollment, and 80 percent signaled an interest in periodic, incremental increases to their contribution rate. Moreover, eight out of ten respondents said that they want at least a “slight nudge” from their employers in helping to save and invest for retirement, and another 80 percent said that they support re-enrollment into target-date funds.
Sources: TD Ameritrade, FRBG, Forbes, TCRS, American CenturyPost author: Charles Couch