When Millennials have the opportunity to save, they do so at a higher rate than other groups, according to new research by T.Rowe Price. The company’s Retirement Savings and Spending Study found that 40% of Millennials have increased their retirement savings within the past 12 months, compared with 21% of Baby Boomers.
“These Millennials are working for private sector corporations, with a median personal income of $57,000 and an average job tenure of 5 years. So their circumstances may be somewhat driving their behaviors. When they have the means to do the right thing, it appears that they often do,” says Anne Coveney, senior manager of Retirement Thought Leadership at T. Rowe Price.
In addition to an improving job market, Coveney says high student loan debt levels and stagnant wage growth is prompting Millennials to develop good financial habits, with 75% tracking expenses and budgeting compared with 64% of Baby Boomers.
“Median annual raises are only 3%. When you’re talking about saving more, but you’re not making more it really depends on managing your spending. They are definitely ‘getting that.’ Millennials are also experiencing automatic enrollment features more than other generations,” says Coveney.
The survey also found that saving for retirement and paying down debt are the two main financial priorities for Millennials and 60% think Social Security will go bankrupt before they retire.
As for what Millennials should be investing in, financial experts say this, group, which may believe are too risk averse, should have the majority of their investments in stocks, so that they can take advantage of higher returns and their long time horizon.
“There risk aversion is partly the result of watching the financial crisis at a young age,” says Greg McBride, chief financial analyst at Bankrate.com.
“The fact that they are hunkering down in safe haven investments, even for long term goals like retirement is not good. They are not going to get where they need to be if their retirement accounts are not invested where they need to be,” he adds.