Young people have traditionally operated under the belief that since retirement is decades away, there’s plenty of time to plan for it later.
Although that’s true, the sooner saving starts, the more money there will be at retirement.
One of the main problems with early financial planning is that younger people’s salaries are often at the lowest point they’ll see in their adult lives.
With less extra money, setting some aside for later might not even seem possible. But a new trend reveals more youth interest in retirement and estate planning, and that’s a good thing.
Financial Planning Event Yields Unexpected Questions
In October 2013, The San Francisco Chronicle reported that UC Hastings College of the Law hosted a free financial planning event, and the focus of attendee interest was a bit surprising.
Instead of looking for information about how to survive economic turmoil, more people were thinking, and asking, about estate planning. That’s a big switch over previous years’ focus.
It makes sense, really. When the economy is poor, there’s plenty of reason to worry about making the right decisions that will see you through the coming weeks and months without falling behind.
But when the economy starts improving, the stress of daily living isn’t as high, which lets focus expand into the future.
What’s more surprising is that long-term financial plans are being made by more young adults than in recent generations.
Young Adults Ask Parental Advice, But Don’t Always Take It
Many young adults have little financial planning knowledge or experience under their belts. It’s natural for them to ask their parents for guidance, but the advice isn’t always taken at face value.
U.S. News and World Report’s Richard Satran says that while parents explain the fundamentals of financial planning to their kids, the kids usually take that advice as only one factor in how they will approach the future.
One reason why seems to be that younger adults don’t believe they will have the same opportunities as their parents.
They also don’t believe that tiny changes can lead to a secure future, as economist Anthony Webb of The Center for Retirement Research at Boston College explains to Satran.
Cutting out a cup of coffee every day will not make anyone wealthy, even though so many financial planning books give that advice.
What young people seem to want is a logical set of tools that put them in control of their future, not a lecture about being hyper-responsible with every single penny they ever earn.
The Good News: Young Adults Really Are Saving
With all of the confusion about financial planning, the upside is that more young adults really are planning for their futures. They just might go about it in a different way, compared to their parents.
But if real gains are the goal, some traditional advice is worth taking.
Although nearly half of “Generation Y” says stocks will never feel like a safe investment, CNN Money advises that if you’re young, approximately 30 years old or younger, you should give investments serious consideration.
Aim for an investment balance of 28% in foreign stocks, 20% in bonds, and 52% in U.S. stocks.
If that seems to risky, consider historical data. CNN shows that since the mid 1920s, no investment portfolio with mostly stocks has ever lost money over a 20-year period.
In fact, average gains are about 10%, which is more than double that of an investment portfolio that’s primarily bonds.
Young adults might not be as financially savvy as their parents (yet), but the trend shows more people are thinking about retirement, and doing something about it.
The interest is a good sign. With more knowledge under their belts, the up-and-coming generations might eventually teach their parents a thing or two.
Mary Hiers is a personal finance writer who helps people earn more and spend less.