Question of the Day: Why Are Young People Saving Less?

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Nov 11, 2014
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Question of the Day, Research, Budgeting, Savings, Current Events, Chart of the Week

SavingsRates

This chart appeared in Wall Street Journal article “Younger Generation Faces a Savings Deficit

A few questions to get students started:

  • Which age group has the lowest savings rate?  What do you think the causes of this are?
  • What does it mean to have a negative savings rate?
  • Given what you know about compound interest, is it better to save when you are young or when you are older?
  • What impact does student loans have on millenials ability to save?
  • What is net worth (simply your assets – your liabilities) and what has been the recent trend for those under 35?
  • What advice would students give to the 26 year-old quoted in the story?

Here are some of the highlights from the article:

  • Decline in savings increases vulnerability of young people:

“The turnabout in savings tendencies shows how the personal finances of millennials have become increasingly precarious despite five years of economic growth and sustained job creation. A lack of savings increases the vulnerability of young workers in the postrecession economy, leaving many without a financial cushion for unexpected expenses, raising the difficulty of job transitions and leaving them further away from goals like eventual homeownership—let alone retirement.”

  • Lack of savings now has long-term impacts on wealth:

“The problems from a lack of savings promise to reverberate for years. Those who don’t save are unlikely to be wealthy in the future, meaning American angst over wealth inequality seems poised to persist if most millennials are unable to save or choose not to.”

  • What are they spending on?  Experiences, based on a sample size of…one:

“Most of her paycheck from the digital consulting and web-design firm she works for “doesn’t even make it to a conventional bank account. I’ve certainly not had the opportunity to invest in stocks or anything.”  The money mostly went to her social life and travel, she says: a trip to Central America, a wedding in Southern California, a bachelorette party in Austin, Texas, trips to Atlanta and Charlotte, N.C., to see friends, another bachelorette party in Austin.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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