Contrary to popular belief, young people can be responsible with money. When it comes to managing personal finances, millennials are coming out on top. A recent study by T. Rowe Price, which took a look at the financial state of millennials with a 401(k), revealed this age group has pretty good financial habits compared to baby boomers with a 401(k).
Keeping tabs on expenses
The T. Rowe Price Retirement Savings & Spending study showed that more millennials than baby boomers are keeping track of their expenses (75% of millennials versus 64% of baby boomers). They are also making an effort to adhere to a budget (67% of millennials versus 55% of baby boomers).
Beefing up retirement savings
Retirement savings has also been a top priority for millennials. The study notes that even though baby boomers are socking away more of their annual salary for retirement, millennials are catching up. Roughly 40% of millennials have increased their retirement savings over the last year, compared with just 21% of baby boomers. Millennial survey respondents said contributing to a 401(k) and paying down debt were their top priorities. This is despite the fact that millennials haven’t seen great gains in their income over the last 12 months.
“These millennials are working for private sector corporations, with a median personal income of $57,000 and an average job tenure of five 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. However, they are also being affected by the flat income environment, with median raises of only 3% over the past 12 months. Yet they are exhibiting financial discipline in managing their spending and are defying stereotypes that this generation is prone to spend-thrift, short-sighted thinking,” said Anne Coveney, senior manager of Retirement Thought Leadership at T. Rowe Price.
Additional survey findings:
- Approximately 88% of millennials said they are good at living within their means; 67% said they will save by any means necessary.
- When asked to rank their top financial priorities, 27% of millennials said contributing to their 401(k) was a priority, and 28% said paying down debt was important.
- More than half of millennials (59%) contribute the maximum amount to their 401(k) in order to benefit from their employer’s match. About 31% of millennial survey respondents said they contribute enough to take partial advantage of the employer match.
- Approximately 58% of millennials said they would find it beneficial to receive help with managing their spending and debt, compared to 24% of baby boomers.
Who is saving for retirement?
When the survey analysts took a closer look, they found some differences among the saving habits of men and women. Results show that women are less likely to put money in their 401(k). In a separate study comprised of 255 millennials who are eligible to participate in a 401(k) but choose not to, 68% of those who did not save were women. Among the sample who does participate in their employer’s 401(k), just 41% of the savers were women.
The female survey participants who were saving up for their golden years exhibited a tendency to save less than the men. On average, the 401(k) balance for the women was $38,000. The men, on the other hand, had an average of $74,000 saved. The men also saved more of their income toward retirement. Male participants contributed an average of 8.4% of their annual salary, while the women contributed 7.2%.