UBS recently released their UBS Investor Watch report that shows Millennials (people ages 21-36) are the most fiscally conservative generation since the Great Depression. Apparently all the commercials touting lightning fast trades by witty babies, and green lines to happy retirement, have not convinced this generation of savers the stock market is where they want to put their money. Instead over 50% of their portfolio is in cash.
What Caused this Behavior Pattern?
Experts say that the market crash of 2008 has left emotional scars, similar to depression era children. Millennials fear that another crash would wipe out their savings, so they prefer to keep their money in a “safer” investment such as cash. The problem with this approach is cash is not really safe over the long term. Cash will not generate investment returns to outpace inflation, which is the real boogeyman in a lifetime of money saving behavior. Inflation represents the trends of goods and services becoming more expensive each year, even if only slightly. The stock market (and bond market) are the only widely accessible investment vehicle available for long-term savings, capable of combating this slow erosion in purchasing power.
Is this a Concern for Employers?
Much has been written on the relationship between retirement readiness and the tendency to stay longer with one’s employer in the twilight years of an employee’s work relationship. Further, the post-retirement workforce relationship is evolving as more workers become contract, or temporary workers, after traditional retirement ages in order to supplement their retirement savings. However, a typical employer would prefer to see a higher proportion of those employees who are nearing retirement age financially ready to exit the workforce and move into retirement smoothly and with grace. This provides room for the “up and comers” to take leadership roles in organizations, providing career progressions and opportunities to retain valuable employees.
In addition, competition for workers is fierce, and stories of job-hopping for incremental 5 and 10% salary adjustments are commonplace. For workers who are not maintaining age appropriate retirement balances there will be an additional layer of pressure to increase their earnings and speed their savings accumulation. [Whether these savings happen automatically as a result of an increased salary adjustment is a topic for another post.] Employers should care about employee account balance accumulation, as that will be the easiest benchmark for employees to rely on.
A second by-product of financial security is the emotional satisfaction of knowing one is preparing for this event. Life is full of stresses and we, as humans, are not capable of leaving those on our front doorstep as we head to work each morning. As all the retail investing marketing makes clear, “having a plan” should be one of life’s goals. Executing against that plan will have its own reward beyond account balances and investment statements. Happy employees are better employees.
So What’s Next?
My instinct is that the Millennials will become more financially literate. Whether through employer sponsored financial education, or their own online research. For now, the key is to continue to educate them and help them understand the need to save and invest for their future. The quality of your workforce may one day depend on it.