2:45 p.m. April 14, 2022
Nature dictates that attitudes and thinking between generations are in an almost constant state of imbalance. Previously open-minded older folks are becoming bogged down, while a younger, more altruistic cohort is beginning to question their parents’ established certainties and beliefs.
This dynamic process is part of growing up (and also of aging), but it must be said that the imbalance in many areas has probably never been as pronounced as it is today.
Stuck between a generation suffering the horrors of war, real poverty, the enduring dreariness of rationing and an achingly slow post-war reconstruction, and today’s tech-savvy, ethical, social-media-loving millennials, came the happy generation : the Baby Boomers (BBs).
To say that most BBs have enjoyed the fruits of a remarkably long period of sustained economic growth, the foundations of which were laid by their parents and which in turn have led to better health, a cleaner environment and unprecedented access to higher education, among other things, is is an understatement of monumental proportions.
That good life on a plate has now extended into retirement for many BBs (I am one of them) where, after a career that has probably spanned only a handful of different jobs, they have found a well-established, if unwritten, ’employer’ Employee agreement ensures they can enjoy lifelong benefits thanks to a defined benefit pension.
Boomers benefited from post-war certainties stemming from an unprecedented period of economic growth, but they may be the last generation to enjoy and understand the longer-term implications of a “job for life”.
In exchange for roughly 40 years of work without regular career breaks, backpacking in your 40s, generous vacation pay, and fancy Fridays, there was a handsome reward: a guaranteed pension that funds later-life backpacking, frequent vacations, and a bunch of other perk stuff as well.
In contrast, millennials seem to have accepted that they will never enjoy a similarly well-funded ride into their fall years. According to a YouGov report, 44% of 18-34 year olds have no retirement savings at all.
This alarmingly high percentage is due to what economists are calling the disappearance of the career-long mutual loyalty that once bound employers and workers.
The Deloitte Millennial Survey, a study based on responses from more than 10,000 people, reports that 43% would leave their current job within two years if given the choice. Less than 30% intended to remain in their current position for more than five years.
The implications for longer-term retirement savings are clear.
Admittedly, younger people have always had a different and understandably less worldly attitude towards their parents, usually until they too get married, have children, a mortgage and a long list of additional financial obligations. This still appears to be the case; Deloitte reported that millennials believe employers should “share the wealth, create good jobs and improve the lives of workers,” a list that could have been written by any high-minded sixth grader.
But when, or perhaps because, warts and all “jobs for life” certainties are a thing of the past, Millennials’ financial priorities seem markedly different from those of their parents. YouGov reported that just over a fifth (21%) of those who save prioritize saving for retirement, far fewer than nearly a third (32%) who prefer to save for vacations.
This stark difference between generations has been reinforced by a relatively rapid shift in corporate attitudes that has compromised the unwritten employer-employee contract.
The massive structural changes in the 1980s and 90s were accompanied by a new corporate language; Loyalty was given up in favor of relocation, downsizing and offshoring. Automation, AI and the growth of a so-called “gig economy” continue to undermine the agreement. In addition, defined contribution pensions have effectively replaced defined benefit schemes, effectively minimizing and transferring occupational pension risk to employees.
One argument has it that when millennials consider the value of their childhood home, they automatically lose their desire to save for retirement. This may well be true, although as stock-release products proliferate, the wealth of older people is becoming more accessible in their homes, providing additional opportunities for silver-haired backpackers.
Given that such a large percentage of Millennials haven’t made any retirement savings at all, it’s imperative to encourage them to do so. But the process must go beyond the initial phase of enthusiasm, signing documents and investing a modest sum.
Educating the millennial generation to ensure they understand the benefits of saving longer-term is critical, as is the need for the investment industry to develop products and funds that are likely to appeal to a younger cohort. Fund managers note that millennials who save invest around 40% of their portfolios in sustainable investments.
In many ways, millennials may not feel as lucky as BBs (they probably aren’t), but unfortunately that’s no excuse for not saving.