High school yearbooks don’t say which students are “most likely to make terrible financial decisions.” But if they did, a recent report could predict what those mistakes would be, based on when the person graduated.
Every generation has a “pain point” when it comes to their finances, according to a new report from Financial Finesse, a financial education company. For example, many Generation X employees, it says, need to re-evaluate their retirement plans with the expectation of lower Social Security payouts, increasing health-care costs, reduced employer benefits, and longer life expectancies than baby boomers.
The good news: The majority of large organizations are now using automatic features in 401(k) plans to help employees save for retirement, says Liz Davidson, CEO and founder of Financial Finesse. The study asked millennials (born roughly between 1981 and 1996), Generation Xers (born between 1965 and 1980) and baby boomers (born between 1946 and 1964) about their financial management skills.
All the respondents in the survey — over 11,300 in total — are working in jobs with annual salaries of $20,000 to $200,000. The participation in retirement plans in this survey will likely be higher than the national average as these employees get a significant amount of education and help with their benefits, partly because they are working in companies that are clients of Financial Finesse. What’s more, many of these employees are using automatic enrollment in retirement plans.
Younger generations don’t always think of mortality. “Not having enough life insurance is easy to overlook,” says Neil Krishnaswamy, a financial planner at Exencial Wealth Advisors in Plano, Texas. “I recommend term life insurance of at least $1 million for the highest earner.” Workers with a high-deductible health plan should have a health savings account, which also lowers your taxable income.
Here are the three biggest mistakes made by each generation:
- Least likely to have an emergency fund
Only 47 percent of millennials have an emergency fund to cover unexpected expenses compared with only 50 percent of Generation Xers and 71 percent of boomers. “Millennials may have been the most impacted psychologically from the Great Recession,” the report said. “From the way they manage their money to the way they invest, the focus is more on not losing money than growing their wealth for the long term.”
- Least likely to keep on top of insurance
Only 40 percent of millennials carry enough life insurance to replace their income, pay for college expenses for their children or themselves and create an emergency fund for their beneficiaries versus 52 percent of Gen Xers and 65 percent of baby boomers. Similarly, millennials are less likely than those older than them to review their insurance coverage annually to be confident that their health, automobile and home are adequately covered.
- Least likely to plan for retirement or college
Some 83 percent of working millennials in the study contribute to a retirement plan such as a 401(k), 457 or 403(b) versus 89 percent of Gen Xers and 93 percent of baby boomers. Less surprisingly, only 7 percent contribute to a 529 plan or other tax-advantaged savings accounts to save for college expenses for their children (versus 23 percent of Xers and 20 percent of boomers). And one-quarter of people in all age groups contribute to a traditional or Roth IRA.
- Least likely to hit retirement income goals
Only 17 percent of Gen Xers are confident they’re on track to achieve their income replacement goal (80 percent of their current income) by the time they retire; this ties them with millennials who have far more time to achieve their goal. Some 29 percent of baby boomers say they’re on track. However, each generation contributed to a retirement savings plan at work: 83 percent of millennials, 89 percent of Gen Xers and 93 percent of baby boomers.
- Least likely to pay off credit card balances
Only 53 percent of Gen Xers say they regularly pay off credit card balances in full, less than millennials (57 percent) and boomers (66 percent). “Since Generation X struggles the most with debt and paying bills on time, they may be particularly concerned about the impact of debt and late payments on their credit score, especially if they plan to refinance their debt or take out a mortgage to buy a new home,” it found.
- Least likely to avoid overlapping investments
When asked if they looked at their combined assets to develop a master allocation and avoid overlapping of investments, 21 percent of Gen Xers said yes, less than boomers (37 percent) and even millennials (23 percent). The report says Gen Xers may be too preoccupied with day-to-day issues: “Faced with competing priorities, Gen Xers may be putting their children first, at the expense of their own financial security.”
- Least likely to be ready for long-term care
As many baby boomers escaped the property crash, they’re the most financially secure, but they “face an impending health care crisis due to longevity and inadequate insurance planning.” While younger workers don’t yet need or have long-term care insurance, only 16 percent of boomers report having it, despite it being most often required older people and government estimates that 70 percent will need some long-care in retirement.
- Least likely to retire at the age of 65
Some 65 percent of baby boomers workers plan to continue working past age 65 or do not plan to retire, versus 54 percentof Generation Xers and 60 percent of millennials, according to a separate survey of more than 4,000 adults carried out last year by Harris Poll for Transamerica Center for Retirement Studies. “Today’s vision of retirement is a radical departure from earlier generations,” the survey found.
- Least likely to believe opportunities await
Only 26 percent of baby boomers say they have greater opportunities available to them because of their age and generation, versus 61 percent of millennials, according to another 2014 survey by staffing firm Spherion. When it comes to promoting oneself at work, one-quarter of baby boomers say they believe having access to social media allows them to be more productive versus 46 percent of millennials and 36 percent of Gen Xers.
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