Millennials face unique financial challenges, including a changing employment landscape and mounting student debt. This generation must find creative ways to achieve goals such as buying a house, having children or saving for retirement. However, many Americans ages 25-34 aren’t taking advantage of a key method for accumulating wealth: investing.
Specifically, 43% of millennials aren’t investing their money in stocks, bonds, real estate and more. That’s a problem because people who start investing at a young age or when they’re first starting their careers have more time to generate returns that will help them accomplish their financial goals.
Find out how much — or how little — millennials currently have invested, and what’s stopping them from moving forward with this important money habit.
Millennials Have Invested Less Than $500 Over Their Lifetime
An alarming 21% of millennials have invested less than $500 in total over their lifetime. Overall, 54% of 25- to 34-year-olds have invested less than $5,000, and only a small percentage — 14% — have invested more than $50,000.
Question: To your best estimate, how much of your money have you invested over your lifetime?
|Answer Choice||Percentage of Millennials|
|Less than $500||21%|
|$500 to $999||10%|
|$1,000 to $2,499||12%|
|$2,500 to $4,999||11%|
|$5,000 to $9,999||14%|
|$10,000 to $49,999||18%|
|More than $50,000||14%|
A $500 investment may not seem like a lot, but if you start young, even small sums can generate large returns over your lifetime. “Start small, but start early, so you’ll get the advantage of compound interest,” said Bobbi Rebell, a certified financial planner and author of “How to Be a Financial Grownup.”
With the power of daily compound interest, a 30-year-old who invests $500 with a 5% rate of return will see that money grow into $2,876.96 at age 65 — even if they don’t contribute anything more. If that same 30-year-old puts an additional $50 per month toward their investments, they’ll end up with $59,923.91. And, if they had started investing at age 20 instead of age 30, their nest egg would be a jaw-dropping $106,578.42 — not bad for a $500 initial investment.
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Millennials Know They Should Be Investing — but Many Say They Can’t Afford It
Even if many of them aren’t doing it, millennials clearly understand the importance of starting early: 66% said the best time to start investing is prior to age 35. However, the biggest reason millennials aren’t investing is that they don’t feel they have enough money to do so. Almost half of 25- to 34-year-olds said they can’t afford to invest.
Question: What is the primary reason you’re not investing?
|Answer Choice||Percentage of Millennials|
|I do not have enough money to invest||45%|
|I simply do not want to invest||16%|
|I do not know how to invest/never learned how to invest||12%|
|I am afraid to lose money||12%|
|I don’t trust the stock market||10%|
|I would not have enough time to manage my investments||6%|
Granted, millennials have heavy student loan debt and a rising cost of living to contend with, but losing out on compound interest early on might cause you to fall behind on your financial goals. “You can’t afford to wait 40 years before you start investing,” Rebell said.
To see where you can scrape together some funds for investing, take a careful look at your current spending. Bringing your lunch to work a couple of times during the workweek instead of going out to eat could easily save you at least $12.50 per week — that’s $50 per month, or your starting investment. You could also move money from a low-interest savings account, or your stash of cash at home, into an investment account where you can get a better rate of return.
Additionally, 12% of millennials who aren’t investing said they lack the right knowledge, but there are plenty of investing resources for beginners that can help you jump-start your portfolio.
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Millennials Want Bigger Salaries and Less Debt Before They Start Investing
Nearly half of millennials would like to see a raise at work and pay down more of their debt before beginning to invest. But there are different ways you can start now, even if your salary isn’t as high as you’d like and you’re burdened with a hefty amount of debt.
You can juggle your financial priorities by paying off your high-interest debt first — like credit cards — and then tackling obligations with lower interest rates. In fact, steadily paying off lower-interest debt — like a mortgage — instead of rushing on payments can provide benefits such as greater liquidity and tax breaks. As long as you make full payments on time every month, your credit score shouldn’t suffer.
“Some people will say you can’t invest until you’ve paid off all your debt,” Rebell said. “That simply isn’t true.”
Over Half Want To Invest For Retirement — Here’s How To Get There
Even though many millennials are still in the beginnings of their careers, they’re concerned about their golden years. A little more than half of Americans ages 25-34 — or 51% — are focused on investing for retirement. However, it can be difficult to build a sizable nest egg without refining your investment strategy.
- Start now, and automate your investing. Even if you can only contribute a small amount, you should invest whatever you can. “Start with having a percentage of your paycheck direct-deposited into a retirement account,” Rebell said. “Most accounts will let you increase your contribution automatically. So you can contribute 3% now, and a year from now it will automatically increase to 4%.”
- Invest in a tax-advantaged retirement plan. Many employers offer a 401(k) plan and will match part or all of your contributions. “If you invest $1 and your company matches that $1, you’re getting a 100% return on your investment,” Rebell said. “You’ll never get that rate of return anywhere else.”
- If your employer doesn’t offer a retirement plan, open an individual retirement account. You won’t get matching contributions from your employer, but you can still save for retirement and receive tax benefits.
- Increase your savings as your earnings increase. Every time you get a raise, increase the amount that you save so you can maximize your contributions during your peak earning years.
By starting to invest now, automating savings and keeping financial goals in mind, millennials can set themselves up for a wealthier retirement.
Click through to see surprising truths about millennials’ financial expectations.
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